Streamline Refinance: VA, FHA and USDA Breakdown

Streamline Refinance: VA, FHA and USDA Breakdown

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Streamline refinance loans benefit homeowners by allowing them to take advantage of low interest rates and relaxed qualifications without strict loan-to-value or debt-to-income requirements. Many people, who wouldn’t have been able to complete a traditional refinance, are able to lower their monthly payments or create more favorable loan terms for themselves through a streamline refinance.

What is a Streamline Refinance?: Benefits Explained

Streamline refinances are mortgage programs designed to lower monthly principal and interest payments, or provide another benefit—such as converting an adjustable-rate mortgage into a fixed-rate mortgage, while allowing for reduced documentation and more lenient qualifying criteria.

Regardless of whether you're seeking a VA, USDA or FHA Streamline Refinance, the lender will generally base its underwriting decision on the same information used to qualify you for your original mortgage. The benefits of a streamline refinance include more lenient qualification, reduced costs and faster underwriting, as described below.

No Appraisal Requirements

Lenders can rely on the appraisal information obtained during your original home purchase to establish market value. Specific program details vary, but certain streamline refinances allow your loan-to-value ratio to be as high as 125% without requiring you to complete another appraisal. This eliminates costs and cuts down on the time and complexity of the refinance process.

Relaxed Income and Asset Verification

Lenders may not have to requalify your income or assets under a streamline refinance, which can also remove a barrier that might otherwise disqualify certain borrowers from saving money. Eliminating the usual income and asset verification process cuts down on the time and paperwork it takes to close your new loan.

Lenient Credit Standards

Streamline refinances often don't require a hard credit check. This removes an impediment to many borrowers who might benefit most from a refinance. Most lenders will still investigate whether there are any tax liens or judgments outstanding against the property, and some lenders may still have their own credit requirements. Loans that are delinquent, in default or in foreclosure can’t be refinanced until they are brought current.

Low Closing Costs

While title, escrow fees and recording fees are unavoidable costs, streamline refinances can allow you to avoid lender-specific fees, including charges for origination, underwriting and appraisal. Government-backed streamline refinances also place a hard cap on the fees that lenders can charge. This prevents you from having to roll additional expenses into your new loan and maximizes the financial benefit of your refinance.

Faster and Easier Processing

Streamline refinances cut down on the length and expense of the underwriting process by reducing the required paperwork for the borrower and the typically mandated checks that the lender has to conduct. This allows you to realize the financial benefits of your refinances quicker.

Who Offers Streamline Refinances?: VA, FHA and USDA Comparison

Streamline refinance programs are offered through the FHA, USDA and VA. Lenders must be approved by one of the aforementioned agencies to be able to underwrite streamline refinances. While some lenders have additional criteria, we contrast the basic features of each agency's streamline refinance below:

Streamline Refinance Programs: Terms and Conditions

VA IRRRLFHA StreamlineUSDA RefinanceStandard Refinance
Appraisal RequirementNoNoNoYes
Income VerificationNoNoNoYes
Employment VerificationNoNoNoYes
Asset RequirementNoNoNoYes
Hard Credit CheckNoNoNoYes
The Home Affordability Refinance Program (HARP) is no longer available to new applications as of 12/31/2018

VA Interest Rate Reduction Refinance Loan (IRRRL)

These loans are available to eligible US military veterans, active-duty service members and their spouses. Applicants must currently hold an outstanding VA loan. The VA also requires proof of a net tangible benefit to the borrower, which is defined as one of the following:

  • Fixed rate to fixed-rate refinance: Minimum 0.5% rate reduction on your existing mortgage
  • Adjustable rate to fixed-rate refinance: Loan term cannot increase by more than 10 years from your existing mortgage, and total mortgage payments aren’t allowed to increase by over 20%.
  • Fixed rate to adjustable-rate refinance: Minimum 2.0% reduction of your existing rate

All fees and costs incurred as part of in IRRRL refinance must be recouped within 36 months of the note date. Unlike a traditional VA refinance, the IRRRL also reduces the VA funding fee to 0.5% (unless the veteran is completely exempt) from the 2.5%-3.3% required of typical VA refinances.

FHA Streamline Refinance

These are available to homeowners with outstanding FHA loans. In order to meet the net benefit requirements, the refinance must reduce the homeowner's monthly payments by 5% or more.

All FHA loans, traditional and streamline require the payment of a one-time Upfront Mortgage Insurance Premium (UFMIP) in addition to the monthly mortgage insurance premiums.

For loans made before May 31t, 2009, the UFMIP is 0.01% of the loan amount. For loans made June 1, 2009 or later, the UFMIP is 1.75% of the loan amount. Reducing the UFMIP significantly increases the benefit of being able to streamline an FHA loan.

USDA Streamline Refinance

USDA loans are tailored toward homeowners in rural areas and low-to-moderate income households in those areas. USDA streamline loans are available to eligible homeowners in all 50 states who currently have a USDA mortgage outstanding.

To be eligible, the USDA requires that the borrower's monthly payment be reduced by $50 or more to meet its net tangible benefit requirement.

The USDA's annual fee was also reduced from 0.5% (prior to 2016) to 0.35%. Additionally, there is no appraisal required as part of a USDA streamline.

Home Affordability Refinance Program (HARP)

The HARP program was extended through December 31, 2018, but it has not been renewed at this time. HARP was founded under the Obama administration and was designed to help struggling homeowners refinance their underwater home loans.

Do I Qualify for a Streamline Refinance?

Despite the relaxed underwriting requirements, your streamline refinance must still be approved by your lender. Depending on the program, you’ll need to meet a specific benefit threshold when it comes to monthly payment savings, loan terms and features, or both.

Generally, you also won't be able to cash out on proceeds from these loans, as streamline refinances were meant to ease borrower debt burdens rather than increase them. Additionally, only certain lenders will offer streamline refinances, as they must be approved or endorsed by the respective government agency offering the program.

It’s worth noting that you aren’t required to undergo a streamline refinance with your current lender or servicer, so take the opportunity to evaluate a few different lenders before deciding who to refinance with.

Streamline Refinance vs Traditional Refinance: Pros and Cons

Traditional refinance loans are more expensive when it comes to appraisal costs, program funding fees and upfront mortgage insurance and often take longer to complete. By comparison, streamline refinances are typically easier and faster to complete and offer significant financial benefits for homeowners who might not have the time or credit profile to qualify under a traditional refinance.

However, there are many times where a traditional refinance would trump a streamline refinance. Namely, traditional refinances are more likely to secure you a lower rate than a streamline refinance might otherwise be able to. This is especially true for borrowers with good credit scores and substantial assets/income who could qualify for a traditional refinance without much trouble.

Additionally, while streamline refinances allows you to refinance within their respective programs (e.g. VA loan to a VA streamline refinance; FHA loan to an FHA streamline refinance), traditional refinances are program-agnostic and allow you to refinance out of cumbersome mortgage terms, like the PMI requirement under the FHA program. This gives you more flexibility to shift to another mortgage program should the benefits justify it.

Ultimately, streamline refinance loans were created as an alternative to the traditional refinance process and designed to increase access to the benefits of refinancing. They remove some of the most common barriers that homebuyers face when trying to refinance their homes—namely cost, credit and current home value. It’s definitely worthwhile to consider a streamline refinance if you’re unable to qualify for a traditional refinance.

Kenny Zhu

Kenny is a Banking and Mortgage Research Analyst for ValuePenguin and has worked in the financial industry since 2013. Previously, Kenny was a Senior Investment Analyst at PFM Asset Management LLC. He holds a Bachelors of Science from Carnegie Mellon University, where he majored in International Relations & Politics. He is a CFA® charterholder.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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