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Can You Refinance Your Home Without a Mountain of Paperwork?

Scott Sheldon

Are you looking to refinance your mortgage but want to avoid all the paperwork that comes with it? Most mortgages require you to provide two years of tax returns and W-2s, 30 days of pay stubs and at least two months of bank statements to demonstrate your ability to repay the note. If you're buying or refinancing a home, there's no way around it — you will be subject to the scrutiny of the bank's underwriter.

However, if you are looking to refinance to reduce your fixed housing costs, these three programs could meet you halfway in terms of the required paperwork. After all, who wants to go through a detailed financial analysis every time you want to save a few hundred dollars a month?

1. Home Affordable Refinance Program 2

If your loan is owned by Fannie Mae or Freddie Mac, and it was taken out no later than May 31, 2009, you're golden. The role of the Home Affordable Refinance Program (HARP) was to offer homeowners a refinancing option without loan-to-value restrictions. The program still has the same flexible appraisal threshold.

Each mortgage company offering the program must perform an automated underwriting analysis on your loan application. Automated underwriting is the nationwide algorithm lenders use in originating loans sold to Fannie Mae and Freddie Mac. The automated underwriting results determine a loan that is eligible for sale delivery to either entity. If the automated underwriting results reveal your loan does not require an appraisal, you don't need to obtain one. Additionally, even if you have a debt-to-income ratio as high as 60% (the typical limit for a mortgage is a 45% debt-to-income ratio), this may also fly with your mortgage company.

Note that some mortgage companies have debt-related adjustors built into their origination guidelines, meaning that even though the program itself does not have a debt-to-income ratio requirement, you might still be limited to 45% in the lender's system and it may mean having to request an exception for approval.

Additionally, if automated underwriting only requires pay stubs and, say, one year of federal income tax returns, you need only that information in conjunction with your mortgage loan application. However, your mortgage company may still require full documentation. For the loan to be considered eligible for delivery to Fannie Mae and Freddie Mac, the only documentation that is required is specifically identified on the automated underwriting result your loan officer has access to. If your mortgage company is still asking you for more financial documentation, ask your mortgage broker to provide a copy of the Desktop Underwriter (DU) — Fannie Mae's algorithm — or Loan Prospector (LP) — Freddie Mac's algorithm — results on your application.

2. FHA Streamline Refinance

The Federal Housing Administration insures loans made by mortgage lenders. It insures the lender originating your loan against default and offers homeownership options much more flexible and lenient in comparison to conventional loans. One of the nuances of FHA loans is the ability to refinance from one FHA loan to another FHA loan, called an FHA Streamline Refinance. The program requires no income documentation of any kind, and no debt-to-income calculation or limitation, either. In other words, your debt-to-income ratio could be as high as 70% and the lender is not required to qualify you based on your income-to-debt load. The reasoning here is that the FHA is simply refinancing loans they already insure, minimizing risk.

The FHA reduced mortgage insurance premiums in January 2015, making FHA Streamline Refinances more attractive as the mortgage insurance has been drastically cut. This program specifically does not require an appraisal, unless you're financing closing fees. If you have an FHA loan on your home that you took out in 2014 or before, there is strong likelihood you would save money with lower mortgage insurance premiums and current mortgage rates.

3. VA Loan Refinance

If you are a U.S. military veteran who currently has a VA loan, you could stand to benefit without mountains of paperwork for a refinance. The U.S. Department of Veterans Affairs guarantees loans made by lenders against default. The Interest Rate Reduction Refinance Loan (IRRL) mirrors the FHA Streamline Refinance where no debt-to-income ratio is calculated and no appraisal is required.

Generally, to be eligible for any one of the three mortgage loan programs you'll need a 620 credit score or better. Some lenders might offer pricing incentives or credits for better credit scores as well. If you want to know where you stand before you start the process, it can help to check your credit scores – you can see two of your scores for free through Credit.com.

Finally, while it is certainly an inconvenience to have to provide all that financial documentation for a refinance, it could ultimately benefit you to do so anyway by proving you worthy of a lower rate. It's something to keep in mind.

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