An FHA or VA streamline refinance can reduce the payments on your mortgage, fast.

It's not often that you can use the words "efficient" and "federal" in the same sentence. But the streamline refinancing program of the Federal Housing Administration (FHA) may be one of those rare government programs that can be pushed through in a relatively short period of time.

Short, sweet road to funding

If you hold an FHA or Veteran's Administration (VA) mortgage in good standing, you may qualify for a quick trip to a lower payment. The VA and FHA streamline refinance is a fast track program that rewards you for keeping your loan current. The program incorporates a shortened underwriting process on the assumption that if you can afford your current loan, you can definitely afford a loan with lower payments.

The streamline refinance lowers your payments either by taking advantage of a lower market interest rate, or by extending the maturity date of the loan. If the loan being refinanced has more than 18 years of payments left, the new loan will have a standard 30-year maturity. Otherwise, the new loan has to mature 12 years after the maturity date of the original loan.

With or without a property appraisal

The FHA or VA refinance streamline process can be completed with or without a property appraisal. No-appraisal streamline refinances are used solely for the purposes of lowering the monthly mortgage payment. In other words, you don't have the option of cashing out equity under the no-appraisal program. Income, asset, and employment verifications aren't required. The maximum allowed loan amount is the lesser of

  • the original mortgage balance, plus new upfront mortgage insurance premiums (UMIP); or
  • the existing debt, including prepaid expenses, closing costs and UMIP.

A property appraisal is required if you want to raise the loan amount and cash out your home equity. In this case, the maximum allowed loan amount is the lesser of:

  • the statutory maximum loan-to-value (usually 97.5 percent) applied to the appraisal value; or
  • the existing debt, including prepaid expenses, closing costs, and UMIP.

The rules are slightly different if the property is classified as an investment; in this case, only the existing loan balance can be refinanced. Also, the loan amount on any VA or FHA streamline refinancing can only exceed the standard FHA/VA loan limitations by the amount of the required UMIP.

No cost/low cost streamline refinancing

Some lenders offer no-cost streamline refinances. These carry a slightly higher interest rate, but the lender pays most of the closing costs on your behalf. You may also have the option of rolling the closing costs into your loan balance, which is another way to reduce your out-of-pocket expenses.

So here's the lesson learned: Make your FHA or VA mortgage payments efficiently, and you'll get the same kind treatment back from the feds.