How Does a Streamline Refinance Work?
When talking to your loan officer about your options there will be conventional and government-backed loans. Conventional loans are those underwritten to guidelines established by Fannie Mae and Freddie Mac and are the most common. Government-backed loans include VA, FHA and USDA home loans and offer low or no-down payment financing options for a primary residence. Conventional loans can be used to finance a primary residence, vacation or second home or a rental property. However, when it comes time to refinance, government-backed loans have a feature conventional loans do not called a “streamline.”
A streamline is so-called because during the refinance procedure there is much less paperwork required. And that’s just for starters. Streamline loans don’t require an appraisal nor is income and employment verified. Let’s take a look at streamline options.
VA. Sometimes referred to as the Interest Rate Reduction Refinance Loan, or IRRRL, the VA streamline waives the requirement for income documentation and employment, eliminates a minimum credit score requirement as well as not requiring an appraisal. As long as the borrower is refinancing to a lower rate or refinancing from an ARM to a fixed, the streamline can be used.
USDA. Like the VA streamline, the USDA loan has a similar streamline feature and is now available in all 50 states after a test rollout in selected areas. Like the VA loan, there is no appraisal required nor is income or employment checked.
FHA. The FHA streamline refinance does not require an appraisal nor is income and employment verified, similar to the VA and USDA streamline programs.
These streamlines can only be used in a “like for like” transaction. That means an FHA streamline can only be used to finance an existing FHA loan. Likewise, USDA streamlines refinance an existing USDA loan as well as a VA-to-VA transaction. Lenders can also verify there has been no more than one payment made within the previous 12 months that is 30 days past the due date and no such lates in the past six months. Because there is so little paperwork involved, streamline loans can close in a matter of days, not weeks.
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