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FHA Streamline Refinance: Pros, Cons And Rates

Miranda Crace4-minute read

October 26, 2021

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If you currently have an FHA loan and your goal is to decrease your monthly mortgage payments, you might want to consider an FHA Streamline Refinance.

Let’s look at what an FHA Streamline is, how it works and the benefits it can provide.

What Is An FHA Streamline Refinance?

The FHA Streamline Refinance is a mortgage refinance product that can help homeowners with an FHA loan to lower their interest rate and reduce their monthly payment. 

As the name suggests, an FHA Streamline is a relatively speedy and simplified process. Some borrowers are even able to skip the appraisal before closing.

Pros Of An FHA Streamline Refinance

Here are some reasons you might want to consider an FHA Streamline.

Lower Your Monthly Payment

FHA Streamlines are a fast way to lower your monthly mortgage payment.

The FHA has strict guidelines regarding how you achieve the lower payment. For example, you can’t add more than 12 years to your loan term. If you do extend your loan term to lower your payment, you must also reduce your interest rate. It all comes back to achieving the net tangible benefit required for an FHA Streamline.  

Refinance Even If You Owe More Than Your Home Is Worth

Unlike many mortgage refi options, an FHA Streamline allows you to refinance even if you owe more on your home than it’s worth.

The loan amount for your FHA Streamline is primarily determined by the outstanding principal balance of your loan – so if your home value has declined, you may still be able to use an FHA Streamline to refinance.

Limited Documentation and Credit Check

There are two types of Streamline refinances. The first is credit qualifying, where you provide income documentation and the lender performs a credit check. If your refinance happens to remove a borrower from the mortgage, you fall into this type of Streamline refi.

The second is non-credit qualifying. With this type of refinancing, your lender still checks your credit, but there are fewer factors your lender considers within your credit report. For a non-credit qualifying refinance, your lender may not need to verify your income. This makes for a faster, easier approval process.

You Won’t Need an Appraisal

A home appraisal is an unbiased estimate done by an appraiser to determine the fair market value of the home. FHA Streamlines generally don’t require an appraisal of the home because the loan amount is determined by what you owe – not the current home value.

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Cons Of An FHA Streamline Refinance

Like anything else, there are some trade-offs to be aware of before taking the plunge into a streamline refinance. Let’s take a look at some considerations.

Closing Costs

As with most types of refinance, the FHA Streamline Refinance requires closing costs, which can’t be wrapped into the new loan. However, some lenders will agree to pay your out-of-pocket closing costs – and charge you a higher interest rate in exchange.

No Cash Back

You can’t use an FHA Streamline to take more than $500 cash out. FHA Streamlines are intended to help you lower your mortgage payment, so if you’re interested in taking cash out, you’ll need to choose another loan type.

Mortgage Insurance

You’re required to pay a mortgage insurance premium (MIP) with both an FHA loan and an FHA Streamline. When you first get an FHA loan, you pay MIP, which protects your lender if you default on your loan. You’ll continue to pay MIP when you refinance. If you’re looking to stop paying mortgage insurance, a conventional loan may be a better choice, depending on how much equity you have.

The only way to remove MIP is to convert your FHA loan into a conventional loan (for which you’ll typically need a credit score of at least 620) and reach 20% equity in your home.

Today’s FHA Streamline Refinance Rates

FHA Streamline refinance rates change often and may differ among borrowers, so it’s wise to compare current rates

Rates might be offered as a 5-year ARM (adjustable-rate mortgage) as well as a 15-year or 30-year fixed loan. That said, here are some of the current rates you can expect.

Today's Refinance Rates

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Rate / APR

Pricing is currently not available for the selected value.

FHA Streamline Refinance Guidelines

Let’s look at the requirements you’ll need to meet to qualify for refinancing with an FHA Streamline.

Mortgage Loan Type

You must currently have an FHA mortgage to refinance with an FHA Streamline. You cannot use an FHA Streamline to refinance an existing conventional loan or any other loan type.

Net Tangible Benefit

To get an FHA Streamline, the refinance must offer you a net tangible benefit. This means that the refinance must be beneficial to you according to the FHA’s guidelines.

The definition of the net tangible benefit varies based on the details of your loan, but here are some general guidelines:

  • If you’re reducing the term of the loan, your new interest rate must not be higher than your current rate. Additionally, your new mortgage payment (including principal and interest, and your mortgage insurance premium) must not exceed your old payment by more than $50.
  • If you’re not reducing the term of the loan, there are guidelines regarding how much your interest rate and mortgage insurance premium rate can increase or decrease.

Timing

There are a few guidelines for how long you must wait between getting your FHA mortgage and doing an FHA Streamline refinance:

  • You must have made at least six payments on your FHA mortgage.
  • At least 6 full months must have passed since the first payment was due on the mortgage.
  • At least 210 days must have passed from the closing date of the mortgage you’d like to refinance.

Good Standing

You must be in good standing with your current mortgage. Here’s what that means:

  • In the past 6 months, you’ve had no payments that were more than 30 days late.
  • In the past 12 months, you’ve had no more than one payment that was more than 30 days late.

Is Applying For An FHA Streamline Refinance A Good Idea?

If you’re in good standing with your current FHA loan, you may qualify for an FHA Streamline to lower your mortgage payment. If you meet the requirements for an FHA Streamline, you can speed up the process of getting your mortgage refinanced. The streamlined process will allow you to refinance an appraisal, and maybe also without income verification.

Ready to refinance? You can with Rocket Mortgage®. Still have questions? Contact a Home Loan Expert now.

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Miranda Crace

The Rocket Mortgage Learning Center is dedicated to bringing you articles on home buying, loan types, mortgage basics and refinancing. We also offer calculators to determine home affordability, home equity, monthly mortgage payments and the benefit of refinancing. No matter where you are in the home buying and financing process, Rocket Mortgage has the articles and resources you can rely on.