What is a FHA streamline refinance?
Key takeaways
- An FHA streamline refinance makes it easier and cheaper for borrowers with FHA loans to refinance at lower rates.
- There are two FHA streamline options: non-credit qualifying and credit-qualifying. The former has no credit check.
- To be eligible for an FHA streamline refinance, the borrower must get a net tangible benefit, like a lower interest rate or a fixed rate.
What is an FHA streamline refinance?
An FHA streamline refinance is a type of refinance loan available to FHA loan borrowers. As with any refinance, it involves taking out a new mortgage that you use to pay off your current one. It’s called a streamline refinance because the process of applying for the loan is much simpler than that of a standard refinance. It typically doesn’t require a home appraisal, for example.
How does an FHA streamline refinance work?
The FHA streamline program is divided into non-credit qualifying and credit-qualifying refinances. Both types are designed to lower the monthly principal and interest payments on a mortgage insured by the FHA.
Credit-qualifying FHA streamline refinance:
- Requires the lender to verify your income
- Lenders must check your credit and confirm your debt-to-income ratio
- Used when the refinance would reduce the mortgage payment by more than 20 percent (as required by the FHA)
Non-credit qualifying FHA streamline refinance:
- Lenders are not required to verify income
- FHA does not require a credit check or debt-to-ratio income inquiry (although the lender might still check)
The FHA streamline program allows you to refinance even if you have an underwater mortgage — that is, you owe more on the home than it’s currently worth.
FHA streamline eligibility guidelines
The FHA streamline refinance program has more relaxed lending guidelines than traditional refinances when it comes to an appraisal, credit check and income verification. Yet it still imposes a number of eligibility requirements. The requirements can vary by lender, but here are the minimum standards.
1. You must refinance an FHA loan
This is the primary rule. To take advantage of the FHA streamline program, you must already have an FHA-insured mortgage.
2. You must receive a ‘net tangible benefit’
It’s only possible to do an FHA streamline refinance if it results in what the FHA calls a “net tangible benefit” for the borrower. These net tangible benefits include:
- At least a 0.5 percent reduction in your fixed-rate mortgage payment (including the mortgage insurance premium)
- Changing from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage
- Shortening the loan term or extending it (to lower payments)
ARM streamline refinances have other specific requirements, as well. If you’d like to streamline refinance a one-year ARM to a fixed-rate loan, for example, the new interest rate can’t be more than two percentage points higher than the current ARM rate. The inverse is also true: If you’re refinancing a fixed-rate loan to a one-year ARM, the new rate must be at least two percentage points lower than the fixed rate.
3. You can only apply after a waiting period
You can’t apply for a streamline refinance immediately after closing your FHA loan. You’ll need to wait until:
- You’ve made at least six on-time payments
- Six months have passed since your first payment due date
- It’s been 210 days since your FHA loan closed
4. You must have a history of on-time payments
If your FHA loan is less than a year old, you’ll need to have made all of your monthly payments on time. If you’ve had your mortgage for more than a year, you’re allowed one 30-day late payment in the past 6 months — but, you must have made all mortgage payments on time for the three months before applying for the refinance.
5. You must pay mortgage insurance premiums
Like all FHA loans, you’ll pay mortgage insurance premiums (MIP) on an FHA streamline refinance. This means another upfront MIP, plus annual MIPs, at the following rates:
- Upfront MIP: 1.75 percent of the loan amount
- Annual MIP: Varies based on loan amount, LTV ratio and loan term, between 0.15 percent and 0.75 percent
Depending on when you got your initial FHA loan, you might be able to get a portion of the upfront MIP refunded when you refinance. The longer it’s been, the lower the refund. This refund could help you pay the MIP on the new loan.
Pros and cons of FHA streamline refinances
Pros of an FHA streamline refinanceg
- No credit check: Having a low credit score typically won’t keep you from refinancing (for non-credit qualifying FHA streamline refinance)
- No income verification: Unlike with a conventional refi, you won’t need to prove your income (again, with a non-credit qualifying FHA streamline refinance). That saves you some paperwork.
- No appraisal: The refinance loan amount is determined by what you owe on your current mortgage, not your home’s current value. That can be very beneficial for borrowers in a negative equity situation.
- Faster time to close: Because they don’t require a lengthy underwriting process, streamline refis close relatively quickly.
Cons of an FHA streamline refinance
- Limited to FHA borrowers: If you don’t have an FHA loan now, you won’t qualify for this program. It’s not open to borrowers with a conventional or other type of mortgage.
- Strict rules: To qualify for a streamline refinance, the new loan must have a “net tangible benefit” to you as the borrower. Depending on your refinance goals, these requirements might be harder to meet.
- Repay mortgage insurance: When you refinance with an FHA streamline, you’ll have to pay the upfront mortgage insurance premium (MIP) again.
- No cash out: You can’t do a cash-out refinance within the streamline program.
What are FHA streamline refinance rates today?
FHA refinance rates are usually competitive with the refinance rates for other types of loans. You can use a mortgage refinance calculator to see how lowering your rate or adjusting your loan term would impact your mortgage payment and total interest.
How to apply for an FHA streamline refinance
- Check your credit. Any time you apply for a new loan, it’s smart to check your credit report and score. Although the FHA allows lenders to forgo a credit pull on non-credit qualifying streamline refinances, some lenders might still do one. If your credit could use some work, you’ll have time to take steps to improve your score, which raises your chances of a better rate.
- Find an FHA-approved lender. While you could go back to your current FHA lender, it pays to shop around, as rates vary from one lender to another. Many types of lenders offer FHA loans, including streamlines. Here are some of Bankrate’s picks for best FHA lenders.
- Prepare for the application. Although you won’t need to provide as many documents for an FHA streamline refinance, you’ll still need to furnish some details about your mortgage and financial situation. This includes information like your current mortgage statement and homeowners insurance policy.
FAQ about FHA streamline refis
