Streamline Refinancing Loans

The FHA and the VA both have Streamline Refinance Loan programs that can offer a borrower the potential to get a refinance loan with no government required appraisal or credit check. Your lender may require one or both depending on circumstance but for both VA and FHA loans in this area the government doesn’t force the lender to require them.

Streamline refi loans offered by the VA and FHA must provide what the government terms a “net tangible benefit to the borrower”. That benefit can be in the form of a lower mortgage payment, a switch from a variable rate or adjustable rate mortgage to a fixed rate loan, or a lower interest rate.

Streamline loan rules published by both the VA and FHA state that simply getting a new loan with a shorter loan term is not considered a tangible benefit to the borrower, so the length of the loan isn’t a factor here.

Streamline refinancing does not permit money back to the borrower, so if you were hoping for a no-credit check refi with cash back, this isn’t the loan product for you. Consider the rules published about streamline loans in Chapter Six of VA Pamphlet 26-7--rules for money back on the Streamline Refinance include the following:

“An IRRRL cannot be used to take equity out of the property or pay off debts, other than the VA loan being refinanced…Loan proceeds may only be applied to paying off the existing VA loan and to the costs of obtaining or closing the IRRR.”

But VA loan rules take this notion even further, including the following statement: “Therefore, the general rule is that the borrower cannot receive cash proceeds from the loan.  If necessary, the refinancing loan amount must be rounded down to avoid payments of cash to the veteran.”

Borrowers can and sometimes do get money back on FHA or VA refi loans for items they pre-paid up front but later decided to include in the loan amount. Also, anyone applying for a Streamline Refinancing loan may also choose to include an Energy Efficient Mortgage Loan package in the amount of the loan, which may result in money disbursed to the borrower to pay for the exact cost of the energy efficient improvements. That is the only other exception to the “no cash back” rule.

 

 

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