The Low Doc Refinance Program for Government Mortgages
FHA, VA, and USDA mortgages are more popular than ever.
However, homeowners with these types of loans do not refinance nearly as much as homeowners with traditional loans.
That seems strange given that government-sponsored mortgage rates are lower.
And homeowners with FHA, VA, and USDA loans can take advantage of Optimized Refinancing – a faster, and often cheaper, way to lower your interest rate.
Why aren't more homeowners using this strategy? And does rationalization make sense for you?
Check your eligibility to streamline refinancing (August 25, 2020).
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Benefits of streamlined refinancing
Optimized refinance is a quick and easy way to refinance a government-sponsored mortgage, explains Brian Martucci, financial expert at Money Crashers.
Streamline refinances are available for homeowners who currently have:
FHA MortgagesVA MortgagesUSDA Mortgages
And this program has unique advantages.
"Conventional refinancing typically takes longer than a streamlined or low-doc refinance because it requires more paperwork and evaluation," says Martucci.
“A streamlined refi does not usually require a revaluation. And you probably don't need to provide credit and income records like you would with a traditional refi, ”he continues.
"A streamlined refinance loan is faster, has lower minimum requirements, and usually only involves service-level processing" – Tennis Shirshikov, Real Estate Analyst
Dennis Shirshikov, a real estate analyst, agrees.
“A traditional refinancing loan is similar to a mortgage. It takes a lot of paperwork, inspection and other controls to make sure the property holds its value, ”notes Shirshikov.
"A streamlined refinance loan is faster, has lower minimum requirements, and typically only involves service-level processing."
Check your eligibility to streamline refinancing (August 25, 2020).
FHA streamlines refinancing
Eligible FHA borrowers can apply for an FHA streamlining refinance.
There are a few basic requirements to qualify for an FHA rationalization reference.
You need to be up to date with your mortgage payments. The loan must be at least six months old. You need to cover the closing costs and pay the mortgage insurance premium
Clifford Rossi, a finance professor at the University of Maryland, says FHA rationalization may also require a credit check and assessment of your income and ability to repay the loan.
However, in some cases even these minimal steps are not required.
"(Some) borrowers may be eligible for a non-credit qualifying loan that bypasses this assessment and allows them to receive a lower interest rate than the credit-qualifying version," says Rossi.
Check your FHA rationalization eligibility. Start Here (August 25, 2020)
The VA Streamline Refinancing (IRRRL)
Veterans, active service members, and surviving spouses with existing VA loans can opt for an Rate Reduction Refinance Loan (IRRRL). This loan is also known as VA Rationalization Refinance.
With the VA IRRRL, homeowners with current VA loans can potentially refinance at a lower interest rate with minimal paperwork and no valuation.
However, the lenders have their own requirements. Some may require a credit check and rating. Ask about these guidelines before choosing a VA IRRRL lender.
As an added benefit, you can include your closing costs in the new loan or accept a slightly higher interest rate to cover these costs.
Thus, VA homeowners may be able to refinance out of pocket at little or no cost.
Check your VA Rationalization Eligibility. Start Here (August 25, 2020)
The USDA is streamlining refinancing
For those with USDA rural residential mortgages, Reflined-Assist-Refi is a program that promises less paperwork and processing than a standard mortgage application.
If you are already a USDA borrower, you can benefit from significantly reduced fees and simplified approval requirements.
Unless you receive a grant during your loan term, you do not need a reassessment. No credit check is required either, but the lender must verify that your mortgage has been paid for 12 months prior to your refi application.
To qualify for USDA refinance, your new loan must have at least $ 50 or $ 600 per year in payment savings per month.
Check your USDA rationalization eligibility. Start Here (August 25, 2020)
Why aren't more people using streamlined refinancing?
Government bonds are still incredibly popular. In fact, Ginnie Mae reports that $ 70 billion worth of mortgage-backed securities were issued in July.
Amazingly, people with government loans do not refinance anywhere near the same level as borrowers with conventional loans.
Ellie Mae's creation report shows that in June:
FHA loans were 85% buying and only 15% refinancing VA loans were 79% buying and only 21% refinancing Conventional loans were 32% buying and 68% refinancing
Why do so many conventional borrowers take advantage of the record-breaking rates while those with government-supported loans don't?
There are several possible reasons.
1. Homeowners may not be aware of the Refinance Optimization Program
Probably a big reason homeowners don't use Low Doc Rationalize Refinance is because they don't know about it.
"Little has been done to make people aware of rationalization refinancing," says Shirshikov.
“Unfortunately, most of the people who qualify for these loans don't learn about mortgage options on a regular basis. Instead, they often rely on their bank representative to understand and inform these options, ”he adds.
Optimized refinancing is often easier to qualify than conventional refis.
So once you find out about the program, you should ask your lender if you would qualify for a lower interest rate.
2. Rationalization refinances still have closing costs
Another reason why the streamlining of refi activities is not higher may be the related closing costs.
For example, with an FHA rationalization reference, only mortgage insurance can be included in the loan upfront. All other fees must be paid on the final day.
"This is a big departure for many borrowers," says David Dye, broker / CEO of GoldView Realty.
Only two options remain: “Either the borrower must bring in cash to cover all of these expenses, or the lender must give the borrower a higher rate to cover the fees. A higher interest rate negates the purpose of refinancing. "
Note: VA Rationalization Refinance (IRRRL) is more forgiving and allows most of the closing costs to be included in the loan.
3. Lower borrowers may have fewer refinancing options
Rossi points out another reason why FHA refinance numbers in particular could be low.
“The credit profile of FHA borrowers tends to be lower than that of (conventional) loans,” he explains.
"As a result, FHA borrowers tend to refinance at lower interest rates … because those with better credit ratings have more options from lenders."
However, some lenders do not require a credit check for an optimized refinancing.
Those with borderline loans should look for a lender who offers refinancing refinancing without credit checks.
Refinancing Problems During COVID
Of course, your refinancing options will vary depending on your current loan, your equity, and the interest rate that you would qualify for.
And there are some new challenges to watch out for during the coronavirus era. This could make the refinancing process more difficult or longer.
Many lenders are busy, so it may take longer to find a lender with low refinance rates and complete your loan.
"Lenders have had to adapt to the new coronavirus reality as they have reduced on-site staff and made other adjustments with customer-facing activities like processing mortgage applications," Rossi says.
"As a result, lenders and loan guarantors like the FHA are generally able to process applications."
Additionally, credit requirements are now stricter than they were before the pandemic began.
"Tighter credit could marginally affect eligibility (refinancing)," said Brian Martucci, a financial expert at Money Crashers.
"This means that lenders are less willing to draw new loans for less qualified borrowers," warns Martucci.
Fortunately, thanks to substantial federal guarantees associated with FHA, VA, and USDA mortgage programs, this shouldn't create widespread problems for borrowers eligible for refi tightening. However, a tighter credit could affect margin eligibility. "
Do You Qualify For A Low Doc Rationalization Refinance?
Don't let the coronavirus or any of the above rules stop you from getting an optimized refinancing of your government loan.
Do your homework to increase your chances of qualifying for an optimized refi.
Check your three credit reports free at AnnualCreditReport.com. Correct any errors or problems you see thereCheck your credit score, often available free of charge through your bank or credit card companyMake sure you are up to date on mortgage payments. In order to optimize your refinance programs, you need to keep your loan up to date. Check your bank statements to make sure you have no late or missed payments
And remember, you don't have to refinance with your current mortgage company.
You are free to search for a lender with lower interest rates or more flexible requirements. It's about finding the best refi deal for you.
Check your new plan (August 25, 2020)