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If you know people with an FHA, VA, or USDA loan, they may have talked about how easy it was to refinance. This is because these loan programs offer what’s known as a Streamline Refinance.
Streamline mortgage refinancing eliminates most of the underwriting and documentation needed when refinancing your home loan. This article will examine whether conventional Streamline mortgages exist and how you can simplify the refinance process.
What is a Streamline Refinance?
First, we need to explore a Streamline Refinance a little more fully and how it can benefit homeowners.
When you refinance a mortgage, you will undergo an underwriting process with the lender. This is how the lender will understand if you’re a suitable borrower.
However, with a Streamline Refinance, most of the paperwork and even the appraisal on the home is eliminated from the process.
So, what is the benefit of using a Streamline Refinance? Not only does it help speed up the entire refinance process, but it can help borrowers who might not otherwise qualify gain access to certain mortgage products.
For example, you may be able to use a Streamline Refinance if your credit score is lower than what’s typically required by lenders. The same is true if your income is lower or you have a high debt-to-income ratio.
Unfortunately, there is one problem with Streamline refinancing. It’s available with FHA, VA, and USDA loans but not on conventional loans. However, if you have a conventional loan, there are options available.
Conventional Streamline Refinance Alternatives
When you decide to refinance your mortgage, it’s usually because you want to reduce your monthly payment. Here are a few ways to reduce your mortgage payment without actually going through the process of refinancing your mortgage.
Mortgage Recast
If you have extra cash, you could make a large lump-sum payment toward the principal balance on your mortgage. Your lender will assign a lower monthly payment based on your adjusted mortgage balance.
PMI Cancellation
You’re most likely paying for monthly mortgage insurance if you purchased your home with less than a 20% downpayment. However, if your home has appreciated in price, you may have enough equity to eliminate this expense.
Once you reach a 78% loan-to-value ratio (LTV), your lender will automatically eliminate mortgage insurance. However, you can submit a request to your lender after you reach an 80% LTV.
Receiving a Home Appraisal Waiver
One of the major benefits of a Streamline Refinance is that it usually allows you to avoid having an appraisal done on your home. This can save you a significant amount of money and some time.
Even though you can’t go through a Streamline Refinance with a conventional loan, some lenders will refinance without requiring an appraisal.
While it’s dependent on the lender, they will use an automated valuation model. This allows lenders to understand a home’s value based on comparables in your neighborhood. Just be aware that not all lenders are willing to skip the appraisal.
Work With a Technology Driven Lender
Let’s face it, there are progressive lenders and those who have been doing things the same way for decades. Working with a lender that has adapted to industry changes, such as technological advancements, can help make the refinance process smoother and less time-consuming.
It used to be where you would need to manually submit bank and other financial records to your lender for underwriting. Today, many lenders use Plaid or other third-party systems, which allows lenders to access your financials, creating less work for you.
Another area where technology-first lenders can help speed up the refinance process is when it comes time to sign the loan documents. Instead of meeting in person for signatures, many lenders are using services like DocuSign to sign electronically, which can significantly reduce the time it takes to close your loan.
Consider Refinancing to an FHA Loan
To qualify for a conventional loan, you must have a credit score of at least 620. If your credit score has fallen and you no longer meet the requirements, the ideal situation would be a Streamline Refinance of your conventional mortgage if that existed.
Since it doesn’t, you must look for alternative ways to refinance your mortgage.
One option would be to refinance with an FHA loan. While you won’t be able to take advantage of the streamline option since you’re moving from a conventional loan, you can take advantage of the FHA’s lower credit score requirements.
Moving to an FHA loan will still offer mortgage rates similar to those you’d receive from a conventional mortgage product, but there is one downside. All FHA loans are required to have mortgage insurance.
The Bottom Line
While it’s not possible to do a streamline refinance on a conventional mortgage, lenders are making it easy to go through the process. Everything from providing loans without a traditional appraisal to giving you the ability to connect your financial accounts for instant verification can help cut down on the time it takes to underwrite your loan.