If you have an FHA home loan and are considering refinancing it, you might be interested in the FHA Streamline Refinance loan. An FHA Streamline Refinance is a reduced-paperwork loan that’s generally easier to get than a conventional refinance. And you may not need to get your home appraised in order to qualify for one.
Read on to learn about the FHA Streamline Refinance, whether you may be eligible for one, and when you might benefit from this financial product. And if you want to get an idea of current refinance rates for a conventional refinance loan, Credible makes it easy to see rates from multiple lenders.
- What is an FHA Streamline Refinance loan?
- What are the types of FHA Streamline Refinance loans?
- How do FHA Streamline Refinance loans work?
- What are the eligibility requirements?
- Where can you get an FHA Streamline Refinance loan?
- Pros and cons of FHA Streamline Refinance loans
- Is an FHA Streamline Refinance right for you?
The FHA Streamline Refinance is a loan product available to homeowners with an existing Federal Housing Administration (FHA)-insured mortgage who want to refinance their home loan to get a lower interest rate or better terms.
The streamline aspect refers to the limited amount of paperwork and underwriting associated with this loan — not that your loan will get approved or funded faster. For example, you might not need to verify your income or credit score. The FHA doesn’t require a housing appraisal since the FHA already appraised your property when you applied for your original mortgage.
If you’re considering refinancing your mortgage, it’s a good idea to compare offers from multiple lenders. You won’t find rates for FHA refinances at Credible, but you can see your prequalified rates for a conventional refinance in minutes.
Two types of FHA Streamline Refinance loans are available, each with different requirements, advantages, and disadvantages.
For a credit-qualifying FHA Streamline Refinance, the lender will verify your income, check your credit report and possibly credit score, and check your debt-to-income ratio to assess whether you qualify for the loan — and if so, at what interest rate. The advantage of these verifications is that a credit-qualifying FHA Streamline Refinance typically provides borrowers with the lowest available interest rate.
This type of refinance might be good for you if you have good to excellent credit, or if your financial situation has improved since you got your original FHA loan. And in certain circumstances, you’ll be required to get this kind of Streamline Refinance, including:
- You plan to add or remove a borrower.
- The refinance will increase your mortgage payment by more than 20%.
- If you assumed the mortgage (meaning you took it over from the original borrower) less than six months ago, or the mortgage you assumed had no restrictions requiring you to be a creditworthy borrower.
- You assumed the mortgage under circumstances that didn’t trigger a due-on-sale clause (for example, you took over a mortgage following a divorce).
A non-credit qualifying FHA Streamline Refinance is exactly what it sounds like. The FHA doesn’t require the lender to check your credit or verify your income, and if the lender does check, it considers fewer factors in its lending decision.
This product might be better for a borrower with fair or poor credit, or for someone who wants a faster and easier experience.
All refinances involve taking out a new loan to pay off and replace an existing loan. With an FHA Streamline Refinance, you take out a new FHA mortgage to pay off and replace your existing one.
People typically refinance to get a lower interest rate, change their repayment term to get a lower monthly payment, or to take cash out. It’s important to note that with a Streamline Refinance, the maximum cash you can take out is $500. You’d need to look into an FHA cash-out refinance loan product if you want to withdraw more equity than that amount.
Mortgage insurance premiums
FHA loans tend to be easier to get than conventional mortgages — you may be able to get one with a credit score in the 500s. But to protect lenders against possible borrower default, FHA loans — including Streamline Refinances — require borrowers to pay mortgage insurance premiums (MIPs).
The amount of your premium will vary depending on the base loan amount (the principal) and the size of your down payment. You’ll pay an upfront mortgage insurance premium when you first close on the loan, and then an annual premium (divided into 12 monthly payments). You’ll pay that additional premium for the life of the loan if you put down less than 10% at the time of your home purchase. If your original down payment was more than 10%, you’ll pay MIP for 11 years.
When you take out an FHA Streamline Refinance loan within three years of taking out your original FHA mortgage, you could be eligible for a refund of some MIP. Refund amounts are on a sliding scale that depends on how long you’ve been paying on your mortgage. The MIP refund comes in the form of discounted MIP on the new loan.
Here are some key points to know regarding FHA Streamline Refinance loans:
- Current mortgage status — To qualify for an FHA Streamline Refinance, your current FHA mortgage can’t be delinquent.
- Fixed versus adjustable rates — You can get the FHA Streamline Refinance loan as a fixed- or adjustable-rate mortgage (ARM), and you’re allowed to switch between the two types. You can refinance an FHA ARM into a fixed rate, or refinance a fixed-rate FHA mortgage into an adjustable rate. With a fixed rate, your payments remain the same over time. With an adjustable rate, your payments can change based on an index the lender uses. Adjustable rates typically start low and adjust up over time.
- Current loan must be FHA-backed — You must have an FHA-insured mortgage to qualify for an FHA Streamline Refinance.
- Limited cash back — You don’t have the option of a cash-out refinance with the FHA Streamline; you can’t take cash out in excess of $500.
To be eligible for an FHA Streamline Refinance, you must meet certain requirements.
Be up-to-date on your current mortgage
You must be able to show you’ve paid your current mortgage on time for the six months prior to applying for the FHA Streamline Refinance loan. You’re allowed one mortgage payment no more than 30 days late in the past 12 months, but at the time of closing on the new loan, your original loan must be current.
Wait the required time
If low mortgage rates have you convinced it’s time to refinance your loan, you’ll still have to meet timing requirements for an FHA Streamline Refinance. You must make at least six on-time payments on your FHA mortgage, and at least 210 days must pass since you closed on your original FHA mortgage.
Receive a benefit by refinancing
To refinance your FHA mortgage into an FHA Streamline Refinance, your lender will have to determine that doing so will provide you with a "net tangible benefit," or NTB. This means your refinance must:
- Lower your combined rate (the principal and interest of your mortgage plus your annual mortgage insurance premium) by at least 5%.
- Allow you to replace an ARM with a fixed-rate mortgage.
And while shortening your repayment term may be one of your reasons for wanting to refinance, the FHA doesn’t consider it an NTB for purposes of a Streamline Refinance.
You can get an FHA Streamline Refinance from a variety of lenders:
- Online lenders — Online lenders can be a convenient way to research rates and options for a refinance. Many will allow you to at least begin the application process online. Because they don’t have the costs associated with physical branches, they can often deliver competitive interest rates.
- Banks and credit unions — Banks and credit unions are well-established sources for mortgage and refinance products. You might choose a bank or credit union if you prefer a face-to-face relationship with your mortgage lender.
The U.S. Department of Housing and Urban Development (HUD) offers a Lender List Search page, where you can enter your search criteria to find a lender. The lender you select will let you know how to apply.
If you decide an FHA Streamline Refinance isn’t right for you, you can compare rates for a conventional refinance loan at Credible.
Any loan product has its advantages and disadvantages, and the FHA Streamline Refinance is no exception.
Pros of an FHA Streamline Refinance
- Easy, low-hassle loan — The FHA Streamline Refinance is the easiest way to get more favorable terms on your existing FHA loan. Little paperwork is required, the loan closes quickly, and generally no home appraisal is required.
- Better terms — FHA Streamline Refinance loans are granted if you qualify and if you’ll receive a tangible benefit, such as changing from an adjustable rate to a fixed rate, or to lower your interest rate.
- Partial refund of MIP — You could get some of your prepaid MIP back in the form of a discounted combined rate on the new loan.
Cons of an FHA Streamline Refinance
- You pay a new upfront mortgage insurance premium — Because a Streamline Refinance is still an FHA loan, you’ll need to pay a new upfront mortgage insurance premium. The amount of this premium will vary depending on the loan amount and when you took out your original mortgage.
- You pay closing costs — Closing costs might be less with an FHA Streamline Refinance than with a typical mortgage since you don’t need an appraisal and you might not need to pay for a credit check. But you still need to pay other fees, such as a loan origination fee and a title search fee, among others.
- Minimal cash back allowed — Many people refinance their mortgage loan to get some cash back. You can’t get more than $500 back with this product. For a true cash-out refinance, you’ll need to use a different product, such as an FHA cash-out refinance loan.
The FHA Streamline Refinance might be right for you if you have a current FHA-insured mortgage loan that you’d like to refinance to get better terms. You generally don’t need to undergo the same type of underwriting standards with an FHA Streamline Refinance as you would with other types of loans, and you don’t need a new appraisal.
This product isn’t for you if you don’t currently have an FHA mortgage, if you’ve had the mortgage for less than 210 days and don’t want to wait, or if you want to withdraw equity as part of a cash-out refinance.
Other options are available if an FHA Streamline Refinance isn’t for you. If that’s the case, you can apply for a conventional refinance loan at a lender of your choice.