FHA Streamline Refinances: Most Common Mistakes

When submitting an FHA Streamline Non-Credit Qualifying Refinance, there are several common mistakes that can lead to delays, rejections, or additional scrutiny from lenders. Avoiding these mistakes can help ensure a smooth approval process.

1. Not Meeting the Net Tangible Benefit (NTB) Requirement

• Mistake: Failing to demonstrate a clear financial benefit to the borrower.
• Solution: Ensure the refinance results in one of the following:A 0.5% reduction in the combined rate (including MIP) for fixed-to-fixed rate refinances.A 2.0% reduction in the combined rate for ARM-to-fixed refinances.A switch from an ARM to a fixed-rate loan for stability.

2. Incorrect Mortgage Payment History

• Mistake: Submitting an application when the borrower has missed mortgage payments in the last 6 months.
• Solution:The borrower must have made all payments on time for the past 6 months.No more than one 30-day late payment in the past 12 months.

3. Not Meeting the 210-Day Waiting Period

• Mistake: Submitting the application too soon after the most recent FHA loan closing.
• Solution:The FHA loan must be at least 210 days old from the first payment due date.The borrower must have made at least 6 consecutive monthly payments.

4. Incorrect Loan Amount Calculations

• Mistake: Miscalculating the total loan amount, including Upfront Mortgage Insurance Premium (UFMIP).
• Solution:The maximum loan amount is:Existing Principal Balance + UFMIP refund (if applicable) + New UFMIP charge.Ensure the MIP refund is properly applied if applicable.

5. Running a Full Credit Check When Not Required

• Mistake: Running a full credit check when it is not required for non-credit qualifying refinances.
• Solution:A non-credit qualifying FHA Streamline does not require credit score verification or a debt-to-income (DTI) check.However, some lenders have overlays requiring a soft credit pull to check for delinquent federal debt.

6. Including Cash-Out When It’s Not Allowed

• Mistake: Requesting cash back to the borrower.
• Solution:FHA Streamline Refinances do NOT allow cash-out.The only exception is rounding adjustments (up to $500) in some cases.

7. Using an Unapproved Lender

• Mistake: Applying with a lender that is not FHA-approved.
• Solution:Check the lender’s FHA approval status at HUD’s website.

8. Not Factoring in Mortgage Insurance (MIP)

• Mistake: Failing to account for the Upfront Mortgage Insurance Premium (UFMIP) and Annual MIP when calculating savings.
• Solution:Ensure the borrower understands how MIP affects the overall cost savings.If the original FHA loan was closed less than 3 years ago, they may receive a partial refund of UFMIP.

9. Assuming Property Appraisals Are Always Waived

• Mistake: Assuming all FHA Streamline loans don’t require an appraisal.
• Solution:FHA does NOT require an appraisal, but some lenders may require one for risk assessment.If the borrower wants to remove a co-borrower, an appraisal is required.

10. Not Verifying Occupancy Requirements

• Mistake: Submitting a Streamline Refinance for an investment property that was never owner-occupied.
• Solution:The property must have been originally used as the borrower’s primary residence.Investment properties may still qualify if the original loan was for owner-occupancy.

Key Takeaways to Ensure Smooth Processing

? Verify NTB (Net Tangible Benefit) – Ensure the borrower benefits from the refinance.

? Check Payment History – Borrower must be current on the mortgage.

? Confirm 210-Day Rule & 6 Payments – Ensure the loan is old enough to qualify.

? Accurately Calculate Loan Amount – Include UFMIP and refund (if applicable).

? Avoid Running Unnecessary Credit Checks – Only needed for credit-qualifying refinances. ? No Cash-Out Allowed – Only minor rounding adjustments.

? Choose an FHA-Approved Lender – Verify lender eligibility.

? Understand MIP Implications – Ensure borrower savings calculations are correct.

? Confirm Property Occupancy – Must have been owner-occupied at origination.

By avoiding these common mistakes, you can increase approval rates and prevent unnecessary delays in processing FHA Streamline refinances.