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FHA Streamline Refinance: Pros, Cons And Rates

May 20, 2024 7-minute read

Author: Victoria Araj

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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. This type of refinance is intended to make the process as quick and easy as possible for those with an FHA loan.

Learning what an FHA Streamline is, how it works, and how its benefits can help you determine if it's the right option for you.

What Is An FHA Streamline Refinance?

The FHA Streamline Refinance is a mortgage refinance (or “refi”) product through the Federal Housing Administration (FHA) that can help homeowners with an existing FHA loan to lower their interest rate and reduce their monthly payment. An FHA Streamline can also be used to change your loan type. Specifically, you might be able to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.

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.

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Pros Of An FHA Streamline Refinance

For homeowners with an FHA loan, an FHA Streamline Refinance is often the best type of refinance for their situation. Here are some reasons you might want to consider an FHA Streamline.

You Can Lower Your Monthly Payment

FHA Streamlines are a fast way to lower your monthly mortgage payment by locking in a lower interest rate. However, 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. The exception is if you’re going from an ARM to a fixed-rate mortgage.

You Can 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 have an underwater mortgage, meaning 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.

Your Lender May Not Need To Verify Your Income Or Credit Score

The FHA Streamline Refinance comes in two forms. The type you qualify for determines whether your lender will require income verification and a credit check. Let’s take a look at the two Streamline refinancing options.

Credit-Qualifying Streamline Refinance

This type of Streamline refinancing requires you to provide income documentation. It also requires the lender to perform a credit check and calculate your debt-to-income ratio (DTI). If your refinance happens to remove a borrower from the mortgage, you fall into this type of refinance.

Non-Credit Qualifying Streamline Refinance

With this type of refinancing, your lender still checks your credit, but they consider fewer factors within your credit report. For a non-credit qualifying refinance, your lender may not need to verify your income. This makes the approval process faster and easier.

You May Not Need A Home Appraisal

A home appraisal is an unbiased and professional determination of the fair market value of the home. However, FHA Streamlines generally don’t require an appraisal of the home. Instead, the loan amount is determined by what you owe on your existing FHA loan instead of the current home value or loan-to-value ratio (LTV).

You Can Typically Close Sooner

Because you’re not required to provide as much documentation – and because a home appraisal isn’t usually required – the underwriting process is faster. The upshot is that your Streamline Refinance can close even sooner.

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Cons Of An FHA Streamline Refinance

You should also be aware of certain trade-offs before taking out an FHA Streamline Refinance. Let’s look at some considerations.

Closing Costs Are Required

As with most refinance options, the FHA Streamline Refinance requires the borrower to pay closing costs, which can’t be wrapped into the new loan.

However, your closing costs may be lower because you likely won’t have to pay for an appraisal or credit check. Some lenders will even agree to pay your out-of-pocket closing costs – and charge you a slightly higher interest rate in exchange.

Limited Cash Back Is Offered

FHA Streamlines only allow up to $500 in 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 refinancing option, such as an FHA cash-out refinance.

You Have To Pay Mortgage Insurance

You’re required to pay an annual mortgage insurance premium (MIP) and an upfront mortgage insurance premium (UFMIP) 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.

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Today’s FHA Streamline Refinance Rates

Rates might be offered as a 5-year ARM (adjustable-rate mortgage), 15-year fixed loan or 30-year fixed loan. Either way, FHA Streamline Refinance rates change often and may differ among borrowers, so it’s wise to compare current refinance rates.

FHA Streamline Refinance Program 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-insured mortgage to refinance with an FHA Streamline. You cannot use an FHA Streamline to refinance an existing conventional loan or any other loan type.

You may be able to get an FHA Streamline for a converted second home or investment property that is currently backed by an FHA loan. Equity requirements may vary, so be sure to speak with a mortgage expert.

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 – which includes principal and interest, as well as your mortgage insurance premium – must not exceed your old payment by more than $50 per month.
  • 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

Here are a few guidelines for how long you must wait between closing on your FHA mortgage and applying for 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.

On-Time Payment History

You must have a history of on-time mortgage payments on your current FHA loan in order to qualify for the FHA Streamline refi. 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 late payment that was overdue by more than 30 days.

Required Documents

Even though minimal documentation is required to refinance with an FHA Streamline, you’ll likely need to provide a few forms for your refinance application. Depending on the type of Streamline refi you qualify for, these documents may include the following:

  • Your most current mortgage statement
  • Your current FHA mortgage note showing the details of your loan
  • The final settlement statement or deed of trust
  • Contact information for your homeowners insurance agent
  • Contact information to verify employment
  • 2 months’ worth of bank statements showing you are capable of paying any extra costs

FHA Streamline Refinance FAQs

Below are a few frequently asked questions about refinancing with an FHA Streamline.

Is income verification required for an FHA Streamline Refinance?

Often, no income verification is necessary for candidates of an FHA Streamline Refinance. Lenders typically assume that if you’re paying your current mortgage on time, you’ll continue to do so when you have lower monthly payments. If you need credit to qualify, income verification may be required.

Will an FHA Streamline refi affect my credit score?

For non-credit qualifying applicants, the FHA Streamline Refinance shouldn’t affect your credit score too much because your lender is considering fewer factors on your credit report.

With the credit-qualifying option, your lender reviews your credit score, credit history and full credit report. This could lower your credit score slightly, but only temporarily.

Do I have to refinance with my existing mortgage lender?

You aren’t required to refinance with your current lender, so you can compare quotes from a variety of lenders to find the best one for you. However, the FHA Streamline refi program is only available to homeowners who have an existing FHA mortgage loan.

Can I refinance with an FHA Streamline more than once?

You’re allowed to use an FHA Streamline refi more than once, but you’ll need to meet the FHA’s guidelines. This means that at least 210 days must have passed from the closing date of your last mortgage refinance and that you’ve made your recent mortgage payments on time, among other factors.

How much are closing costs on an FHA Streamline Refinance?

Closing costs for an FHA Streamline Refinance are the same as closing costs on other mortgage loans – typically 2% – 6% of the loan amount. However, since you won’t need to pay for a home appraisal, you can expect to save on this expense. Your lender may also offer to roll your closing costs into your loan.

The Bottom Line: Applying For An FHA Streamline Refinance Can Be A Good Idea

If you’re in good standing with your current FHA loan, you may qualify for an FHA Streamline Refinance 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 may allow you to refinance without an appraisal, and maybe also without income verification.

Ready to refinance? Start the approval process with Rocket Mortgage® today. You can also call us at (833) 326-6018.

Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.