The FHA Streamline Loan and Conventional Refinancing Compared

An FHA streamline loan can help you to lower monthly payments as well as interest rates, but what does it take to qualify, and how does it compare to conventional refinancing? For one thing, in order to qualify for the FHA streamline loan, you must already have the FHA loan, but let’s take a deeper look into this.

What is an FHA Streamline Loan?

If you have an existing FHA loan and you wish to refinance, then the entire process can be streamlined and the loan will close quicker.  Basically, what happens is that some of the steps typically taken by the lender when you got the first loan will be bypassed such as the credit check. Some of the basic requirements for an FHA streamline loan are:

  • You must be current on your existing mortgage and all payments must have been on time for the last year
  • You must have been in the property for a minimum of 6 months before you will qualify for a refinance.
  • You must pay the closing costs upfront or you must be originating a no cost refinance.

What is a Conventional Refinance?

A conventional refinance is basically a loan written by a mortgage company that has no backing from the US Government. Under a conventional loan program, the lender assumes all risk involved in making the loan to the borrower.  Conventional refinance guidelines vary from lender to lender.

Which is better?

When making comparisons, you’ll find that each one has its own benefits. The benefits may depend on several factors, such as; current interest rates, the economy as a whole, guidelines, property values.  A loan is very personal, so you will need to determine which type of loan is best for you.

With FHA streamline loans:

  • No paystubs or W2s are required to document income
  • No bank statements or stock portfolio are required to document funds
  • No credit check required
  • Must have a good mortgage history, no more than one 30 day late on mortgage
  • Home must be owner occupied

With Conventional Refinancing:

  • Some lenders may be willing to forego certain fees
  • The lender may allow additional or other collateral other than the real property you are obtaining the loan for
  • The property valuation may be more relaxed as opposed to FHA strict appraisal guidelines
  • Closing costs may be lowered or even eliminated in favor of a higher rate
  • If the lender is keeping the loan within their own portfolio and will not be offering it on the secondary market, then some perhaps more creative financing options can be made available to you.

The bottom line is to study the benefits and disadvantages of each type of program and determine that it is more suitable for your needs.  Keep in mind that some lenders will require the borrower to pay non-refundable application and processing fees, called “Origination Fees” at the time of application.

Do your homework, and study the benefits and pitfalls of each. Don’t be afraid to ask questions of a professional and get advice as to what would really be the best deal and the best path for you to take when considering a refinance. All things considered however, if you already have an FHA loan, then an FHA streamline loan is usually the best way to go with your refinance for a quick, simple loan.