My wife and I are trying to do a FHA Streamline Ref. We have a FHA loan through VHDA (Virginia). We have lived in this house for 5 yrs and never once been late. We want to take advantage. of the low interest rates. So we contacted our mortgage broker to start the FHA SL Ref. He said we were not able to do so because my wife's credit has fell below the 620 score requirement. We don't know what to do. This seems unfair considering we have no problem paying the current mortgage payments. Household income $100-120k. Please HELP
Thank you for your question about FHA Streamline Refinance and credit scores.
The FHA streamline refinance loan program was designed to help FHA loan borrowers refinance their loans in order to lower their interest rates, lower their payments, and/or move to a stable loan. For example move from an ARM (Adjustable Rate Mortgage) to a FRM (Fixed Rate Mortgage).
Just recently, the FHA, under President Obama's directive, lowered the MIP (mortgage insurance premium rates) on FHA streamline refinance loans. (Note: The rates for regular FHA loans were increased).
In order to help you find a FHA loan take the following steps, learn about:
In order to be eligible for a FHA loan, you need to meet the following basic requirements:
In general the FHA streamline loan does not require:
However, a FHA streamline loan does require a "net tangible benefit", which is defined as lowering your monthly mortgage payment (principal, interest, and mortage insurance payment) by more than 5%.
More stringent credit requirements (or a "credit qualifying loan") exist for a FHA streamline refinance loan including:
There are several technical reasons for a loan to be defined as a "credit qualifying loan" including terms of assumption of a loan, and deletion of a borrower. However, one of the main reasons is if the new mortgage term will cause an increase of more than 20% in the mortgage payment.
In general most borrowers who have held the loan for more than 6 months are eligible for a FHA streamline refinance loan. Note: You must have made at least 6 payments and at least 210 days have elapsed since closing on the current FHA loan.
You have already experienced the effects of lenders stricter underwriting requirements. Although the FHA loan was designed to allow an easy process with no LTV, employment, credit or income requirements, the HUD underwriting guidelines do allow for the lender to apply stricter requirements (or overlays).
One of the more common overlays is the credit score requirement. Although FHA loans have easier credit score requirements, many lenders require a score over 580 or 620. The same tougher overlays is true for FHA streamline loans. In fact, many lenders (such as Quicken Loans Feb 2012 policy) require at least a 640 FICO score, not just the 620 score your wife has.
Your situation is frustrating, especially since the Obama Administration is trying to get the lenders to help underwater and struggling borrowers make their loans more affordable. The goal is to lower your costs, stabilize the housing market, and put more dollars in the economy.
However, your situation is not without hope. I suggest that you take these steps: