The Streamline Refinance allows a limited amount of paperwork; the FHA Streamline Refinance can be among the simplest, fastest refinance programs out there. According to FHA guidelines, there is no appraisal, no income to verify; and no credit to review (be aware some lenders do ask for tax returns).
This is a simple and quick refinance; however, to close on a FHA Streamline Refinance, it requires vigilance. Mainly, the homeowners need to pay close attention to their expected mortgage closing date so they don’t waste any of their hard earned cash.
What’s at stake is up to 30 days of prepaid mortgage interest which may be double-paid without your knowledge. It’s because of the FHA guideline which allows mortgage lenders to collect a full month of mortgage interest, regardless of whether the loan’s been paid off prior to the month end; this is different from a conventional refinance for which a mortgage lender will only collect through the payoff date.
To put this FHA rule to an example, assume a homeowner in Orange, California is doing the FHA Streamline Refinance to refinance a $450,000 mortgage; and assume the new FHA loan will fund on the 10th of the month.
- 20 days of per diem interest paid to new lender, to cover the rest of the month
- 30 days of per diem interest paid to old lender, because the FHA prescribes it
The homeowner who funds an FHA Streamline Refinance on the 20th day of the month, therefore, is paying 50 days of mortgage interest for 30-day month — a waste of 20 days of interest.
The better plan is to fund the loan on the 30th of the month such that only 1 day of mortgage interest is paid to the new lender, reducing the total interest paid to 31 days and this will save a good amount of money.
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