The FHA Streamline Refinance is known for its few verification requirements. In general, you do not need a credit verification or verification of your income. In fact, you can even skip the appraisal, basically giving you a new loan for very little verification. This is according to the FHA, though. Every lender is able to add their own requirements to the process in order to minimize their risks. In some cases, this means requiring a specific credits core. In general, however, your credit will not be checked.
Deciding on Whether or not to Pull your Credit
One factor that determines whether or not you qualify for the FHA streamline refinance is your housing history on your current FHA loan. The lender must be able to determine that you have only one 30-date late payment in the last 12 months. In that time, however, the first three months prior to the loan application must have a perfect housing history; the late housing payment can only be in the 9 months before that time. If the lender cannot determine your housing history without a credit report, they might pull your credit.
The basic determinations regarding whether or not your credit needs to be pulled are as follows:
- You must have held the original FHA loan for at least 6 months
- You must live in the property
- Your loan amount many not increase unless it is because of the upfront MIP that you must pay
- Your refinance must be because of the ability to lower your payment or refinance from an adjustable rate mortgage to a fixed rate mortgage
- You must meet the housing payment requirements
Increased Loan Amount
If your loan amount increases more than 20 percent for any reason, your credit will need to be pulled. These instances are very rare as the maximum loan amount is restricted to the outstanding principal balance and the new upfront MIP minus any MIP refund. The one instance where it might occur, however, is if you were to refinance from an adjustable rate mortgage into a fixed rate. If the fixed rate is higher than the initial ARM rate, you might have an increase that totals more than 20 percent. If this is the case, the streamline refinance requires that you have your credit pulled to ensure that you can meet the financial requirements for the higher payment.
The FHA Template
The point of the FHA streamline refinance is to provide borrowers with a more affordable payment. The FHA does not require credit to be pulled, income to be verified, or an appraisal to be done because they use the original FHA loan as a template for approval for the new loan. In essence, you are lowering the payment, which means you are lowering the risk you provide to the lender and the FHA. Because FHA loans are guaranteed by the FHA, lenders have less to worry about as well, making it easier to qualify for the loan.
With all of this being said, some lenders refuse to provide any loan, including the FHA streamline refinance loan without pulling your credit. This is called a lender overlay and is the lender’s right in order to minimize the risks they take. When it comes to the FHA, you can qualify without a credit check, which could mean you qualifying with a credit score as low as 500. In reality, however, most people that have a credit score that low also have poor housing history, which would disqualify them for the loan, which makes not pulling your credit less of a risk for the FHA and the banks.