FHA has permitted streamline refinances on insured mortgages since the early 1980’s. The “streamline” refers only to the amount of documentation and underwriting that needs to be performed by the lender, and does not mean that there are no costs involved in the transaction. The basic requirements of a streamline refinance are:
|The mortgage to be refinanced must already be FHA insured.|
|The mortgage to be refinanced should be current (not delinquent).|
|The refinance is to result in a lowering of the borrower’s monthly principal and interest payments.|
|No cash may be taken out on mortgages refinanced using the streamline refinance process.|
Lenders may offer streamline refinances in several ways. Some lenders offer “no cost” refinances (actually, no out-of-pocket expenses to the borrower) by charging a higher rate of interest on the new loan than if the borrower financed or paid the closing costs in cash. From this premium, the lender pays any closing costs that are incurred on the transaction.