The FHA streamline refinance is a special program set up by the Department of Housing and Urban Development (HUD) to make it easy for FHA borrowers to drop their interest rate and payment.
But did you know that the FHA streamline is great for underwater homes, when you owe more on the mortgage than the home is worth?
The reason this loan type works so well is that no appraisal is required. Because the lender does not request an appraisal, they don’t know the current value. In fact, the value that is used for the refinance is the value that was established when the home was last purchased or refinanced.
So in short, even if your home has lost significant value since you bought it, you can still use an FHA streamline refinance to lower your rate and payment.
An FHA Streamline is Similar to the HARP Refinance Program
You’ve probably heard of the HARP program that allows homeowners to refinance underwater mortgages that are owned by Fannie Mae and Freddie Mac. Well, the FHA streamline refinance is FHA’s version of HARP.
The difference is that no appraisal is required on any FHA streamline refinance, but with HARP, an appraisal is needed occasionally.
Realizing that millions of Americans purchased homes with FHA loans during the mid-2000s when prices were high, HUD has stood behind the FHA streamline program. The loan option was available even before HARP, but it has increased in popularity due to falling values coupled with decreasing mortgage rates.
It’s good to know that even though you don’t have a mortgage owned by Fannie Mae or Freddie Mac, you can still take advantage of an underwater mortgage program.
FHA Streamline Refinance Rates at Historic Lows
Did you know that as recently as the year 2000, 30 year fixed interest rates were in the 8% range? Compare that with the mid 4% range going into 2014. That’s almost a 50% reduction.
And considering home values that are still below their peak and millions of underwater mortgages, it’s quite significant that rates are so low.
Take advantage of this refinance program to lower the rate on your underwater mortgage. It’s always painful to owe more than your home is worth, but by lowering your payments, you will be easier to stick it out while property values increase.
And with the way home values have risen lately, you could be sitting on a nice chunk of equity very soon.