Borrowers do their homework and work with their loan officer and choose the perfect mortgage for their home purchase. Yet even though such careful work is put to good use there can be a time in the future when that loan needs to be replaced with another. A refinance occurs when a new mortgage replaces an existing one. Borrowers can decide to refinance should mortgage rates fall or they want to get out of an adjustable or hybrid mortgage and into the stability of a fixed rate loan. Even changing loan terms to reduce the amount of interest paid over the life of the loan is another good reason to refinance. But once the decision is made to apply for a refinance, there are some options and one of those options is between a streamline and a conventional refinance.
There are two basic types of home loans today, conventional loans and government-backed loans. Conventional loans are those underwritten to standards set by Fannie Mae and Freddie Mac. When refinancing a conventional loan, the process is very much the same when the borrowers first applied for the mortgage to buy and finance their home. Lenders will again ask for income documentation and the borrowers will provide recent pay check stubs, W2 forms and income tax returns if they’re self-employed or rely on income other than from an employer. Lenders will also ask for bank statements should closing costs be paid for out of pocket rather than rolled into the loan. Credit will also be a factor and lenders can ask for a minimum credit score. And regardless when the home was first purchased, the lender will order a brand new appraisal to determine the current market value of the property.
A streamline refinance however ignores much of that documentation. A streamline refinance is an option for government-backed mortgages such as VA, FHA and USDA loans. Each of these programs offers a streamline option and when a refinance is in the works with any of these three loans the streamline is typically the choice. Why? Because of the reduced amount of paperwork required and the ease of a loan approval. A streamline refinance requires no income documentation. That means no pay check stubs or W2 forms. Employment isn’t verified, either. A streamline refinance may not require an appraisal and there are no minimum credit scores. There are some minor differences between these three government-backed options but they all retain the same basic, minimum requirements. Borrowers have an option to streamline or not to streamline, but in almost all cases, the streamline refinance is the better choice.