A streamline refinance is one way to replace an existing home mortgage to get a better interest rate and lower monthly payments. Although it behaves much like any other loan in that it requires a loan application and approval, a streamline refinance generally has less stringent credit and verification requirements -- and much less paperwork -- than a conventional refinance loan.
Although a streamline loan can benefit most any homeowner, relaxed eligibility requirements make them especially helpful to upside-down homeowners -- those with negative equity in their homes -- and homeowners facing issues such as a short-term unemployment situation or a poor credit rating.
Types of Streamline Refinance Loans
The Federal Housing Administration, the Veterans Administration and some private lenders offer streamline loans. In addition, the federal government offers upside-down homeowners a streamline version of its Home Affordable Refinance Program, often abbreviated as HARP.
Basic Eligibility Requirements
Requirements vary between different loan programs. In general, however, your existing mortgage payments must be current for at least the past three to six months, and you must stay within the same loan program. For example, the streamline must be an FHA-to-FHA or VA-to-VA loan. To qualify for a HARP loan, Freddie Mac or Fannie Mae must either own or service the existing mortgage. In the same way, a bank or other private lender only would offer a streamline refinance to loans that it owns.
Less paperwork and fewer verification requirements usually result in faster closing times than with a conventional refinance loan. Other features that streamline loans commonly share are:
- Unlimited loan-to-value ratios
- A home appraisal is not a strict requirement, but some programs will let you roll closing costs into the refinance if you furnish a current home appraisal
- No credit history, employment or income verification requirement
The loan generally must reduce your current interest rate to be approved for a streamline loan. Also, you can't get cash back as part of the refinance, which makes this less useful if you're looking for a refinance that allows you to pull out equity to pay other bills.
Even though federal streamline programs don’t have credit score requirements for streamline loans, your lender has the option to set a minimum qualifying credit score. According to Zillow, a minimum credit score requirement of at least 620 is common.