FHA Streamlined Refinance: Credit vs Non-Credit Qualifying

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With an FHA streamlined refi, most folks have the misconception due to the program name “streamlined” that the refinances are close very quickly and are a slam dunk with little to no paperwork. While they do close quicker than a typical refinance since more often than not, you’re not waiting on an appraisal, if you’re going for a lower cost or better rate, you’re probably opting for a “credit qualifying” FHA streamlined refi. What’s the difference?

FHA streamlined credit qualifying basically means that the borrower is providing income and asset documents, just like a regular refinance. By providing documentation that shows they actually qualify for the new mortgage, lenders provide preferred pricing. Since it is a “manual” underwrite (a real human is underwriting the loan and not a computer program) the debt to income ratio is limited to 45%.

FHA streamlined non-credit qualifying is when income documentation is not provided and not stated on the loan application. The borrower’s income is not a consideration. Because of the higher risk, the rate or pricing is often slightly higher.

EDITORS NOTE: Rates quoted below are expired (years old!!)for a current mortgage rate quote for your home in Washington state, click here.

Right now (July 25, 2012 at 11:00 am) I’m working on a quote for an FHA streamlined refinance for a home located in Seattle. The rates quoted below are based on mid credit scores of 680 –  720 with no appraisal and the base loan amount is $289,000.

FHA credit qualifying 30 year fixed: 3.375% (apr 4.548) priced with just over 1 point in rebate credit which will cover closing cost and some of the prepaids/reserves. Principal and interest payment is $1300.01.

FHA non-credit qualifying 30 year fixed: 3.750% (apr 4.934) priced just under 1 point (about 0.25% difference in fee) which covers closing cost and some of the prepaids/reserves. Principal and interest payment is $1361.82.

NOTE: for a current rate quote on a home located anywhere in Washington state, based on today’s pricing and your scenario, click here.

What type of supporting documentation is required?  This is in additional to a complete loan application and credit report.

Non-credit qualifying:

  • Copy of your existing mortgage Note
  • Copy of your mortgage statement (we need to document a “Net Tangible Benefit”)
  • Bank statement (all pages) if funds are due at closing. Large deposits may be required to be documented.
  • Drivers license
  • Social security card
  • Payoff obtained from escrow company documenting that the current month’s mortgage payment has been made

Credit qualifying: all the above, plus…

  • last two years W2s
  • last two years tax returns (if self employed)
  • most recent paystubs documenting 30 days of income
  • most recent bank statements (all pages) documenting at least funds for closing. Large deposits may be required to be documented.

Additional documentation may be required depending on your personal scenario.

Whether you opt for non-credit qualifying or credit qualifying is your choice and depends on your financial scenario. When rates and pricing are the same for both scenarios, most would opt for “non-credit” qualifying. Since recent changes with how HUD prices FHA mortgage insurance for some loans, there has been major changes with which banks are offering FHA streamlines and how they’re pricing them.

If I can help you refinance your FHA loan on your home located anywhere in Washington state, please contact me.

Comments

  1. I love the term “non-credit”. Any logical, fluent English-speaking person would believe that, no credit, as implied by the term “non-credit” would suggest that there is no need for your credit to be involved. If you read the terms of the Non-Credit Streamline FHA loan it would be further evident when it describes your current mortgage status as qualification.

    Sadly this is not the case, you can have a perfect payment history on your home but still be subject to ridiculous rates by mortgage companies because you have faulty credit. And yes they will run a credit check! Really, they should just leave this named as “FHA Streamline Loan” and “FHA Streamline Loan No Hoops!” because “non-credit” has no logical basis in either of these loans. Maybe the definition of “Credit” has changed in the english language or am I just missing something all together?

    So what is left out there for people who have decent credit 650ish or even those with horrible credit because of things they could not control? The credit system is a mean joke and so it the “FHA Streamline non-credit loan”

    • Joshua, you may be able to find a lender who will do an FHA streamline refi with credit scores of 650. The lenders we work with will not…you can blame the mortgage meltdown/subprime era for the tougher guidelines.

      • Rhonda,
        I was reading the fha Rules for credit qualifying streamline and it says the payment can’t go up more than 20 percent. I’d like to change my fha from 30 to 15 year and stay below that threshold but another lender says you can’t change the term. That contradicts what I have read in the guidelines. Do you know if you can streamline a change in term? Thanks!

        • Rhonda,
          You can change the term from a 30 year to a 15 year FHA mortgage. One thing to keep in mind, is if the payment increases by 20% or more, the lender will require a full documentation loan. Credit, income etc…
          Since you are financially sound to go from a 30 year to a 15 year, you should not have any problems, just a little more paperwork. A good loan officer should be able to make this process painless.

        • AEK is correct, Ben.

          One of my clients wanted to streamline refi into a 15 year FHA loan from their 30 and they were not able to because the increase to their payment exceeded the guidelines. They wound up getting an ARM instead… (their choice, not mine).

          HUD really needs to amend this guideline to allow borrowers to streamline to a shorter fixed term assuming they qualify and not have the payment increase restriction.

  2. Hi Rhonda, even if your borrower’s payment was going up by less than 20%, you would still be unable to streamline them. FHA says that reducing your term is not a net tangible benefit. So if they wanted to streamline and reduce their term, they would need to have their principal, interest & MI go down by 5%, or be going from a 203k to a 203b or be going from an ARM to a Fixed and not have their interest rate go up by more than 2 points if they were in the fixed period of the ARM, or save that 5% if they were in the adjustable period of the ARM. I think that’s ridiculous, but if you have the 2015 Jan-March MRI book, it’s on page 125, section 702.04. Absurd.

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  1. […] you have an FHA mortgage and are considering refinancing, you may be able to do an FHA streamlined refi. Some FHA streamlined refinances do not require an appraisal or income or asset documentation. FHA […]

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