The FHA Streamline Loan vs Conventional Refinancing

When a homeowner wants to refinance a mortgage loan, he choose among the several options for refinancing, including an FHA streamline loan. Consider the following differences between the FHA loan and conventional refinancing.

Qualifying for FHA Streamline Loan

In order to get an FHA streamline loan, you must first have an FHA loan. If you don’t have one, you will have to do conventional refinancing or apply for an FHA refinance loan, which isn’t the same thing as the streamline loan. The following are the requirements for a streamline loan.

Requirements of FHA Streamline Loan

An FHA streamline loan is designed to get the customer a lower mortgage payment and a lower interest rate. Besides having an existing FHA loan, you must also be current on the loan with every payment that was made in the last 12 months; you must have owned the house for at least 6  months; and you must have an FHA approved lender. You don’t need an appraisal, but if you don’t have one, you can’t go over whatever the amount of your current loan already is.

You also have to pay closing costs up front or roll the closing costs into the loan using an appraisal form of the FHA streamline loan. If you do that, your equity has to be able to cover the closing cost amounts.

Streamline Loan for Improvements

Another type of FHA streamline loan is used for improvements on a house. It is a 203k loan and is very similar to the refinance version. It can only be between $5,500 and $35,000. It can be used for things that aren’t considered major alterations, like weatherizing the house or painting. If you need this type of loan, talk to your lender for information.

Conventional Loan Differences

When it comes to a conventional refinance loan, most of the differences involve income or financial information. For one thing, this type of loan always needs an appraisal, while an FHA loan doesn’t. Plus, for conventional refinance, the person borrowing the money must prove at least the last 2 years of their income with pay stubs or W2s. An FHA streamline doesn’t require any documents, just confirmation that a person is employed. Also, with a conventional refinance loan, you have to prove your assets, but with an FHA streamline, there is no proof needed.

When it comes to being able to get more cash out than just for the refinance, this can be done easily with a conventional refinance if there is enough equity. To obtain additional funds with an FHA streamline loan, you must have an appraisal that says the house is worth enough or it won’t be approved.

The time it takes to get a conventional refinance loan can take a month to close, while an FHA streamline loan can be done in half that time.