Basic Rules For Credit-Qualifying FHA Streamline Refinances

There are many types of refinancing loans available for FHA borrowers, including cash-out refinancing and the FHA Streamline Refinancing loan, which generally requires no FHA-directed credit check or appraisal (though the lender is free to require one or both).

Some streamline FHA refinancing loans do require a credit check. These are known as “credit qualifying” streamline loans, and the FHA loan rules require such qualifications when the borrower or the transaction meets certain conditions.

In Chapter Six of the FHA loan rulebook, a section called “Required Usage of a Credit Qualifying Streamline Refinance” explains when a credit qualifying streamline refinance must be considered:

• when a change in the mortgage term will result in an increase in the mortgage payment of more than 20%
• when deletion of a borrower or borrowers will trigger the due-on-sale clause
• following the assumption of a mortgage that

− occurred less than six months previously, and
− does not contain restrictions (i.e. due-on-sale clause) limiting assumption only to a creditworthy borrower, or

• following the assumption of a mortgage that

− occurred less than six months previously, and
− did not trigger the transferability restriction (that is, the due-on-sale clause), such as in a property transfer resulting from a divorce decree or by devise or descent.

FHA loan rules add that credit qualifying streamline refinance loans “for situations in which the change in mortgage term will result in an increase in the mortgage payment” is only allowed for refinancing loans for “owner-occupied principal residences” plus “secondary residences meeting the requirements of HUD 4155.1 4.B.3,”.

There are also streamline refinancing loans available in these cases for “investment properties owned by governmental agencies and eligible nonprofit organizations as described in HUD 4155.1 4.A.6.”

What does “credit-qualifying” mean for these FHA streamline loans? When reviewing a credit-qualifying FHA streamline loan application, the lender is required to verify the borrower’s income, check credit reports, calculate the debt-to-income ratio, and “determine that the borrower will continue to make mortgage payments.” All of this is much the same, if not identical, to the initial FHA home loan process.

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