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FHA Streamline Refinance: Pros, Cons And Rates

Victoria Araj6-minute read

August 06, 2022

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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.

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What Is An FHA Streamline Refinance?

The FHA Streamline Refinance is a mortgage refinance product through the Federal Housing Administration (FHA) 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. The exception is if you’re going from an adjustable-rate mortgage to a fixed-rate mortgage. 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 have an underwater mortgage, or 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 refinance.

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 May Not Need A Home Appraisal

A home appraisal is an unbiased and professional determination of 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.

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 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, some lenders will agree to pay your out-of-pocket closing costs – and charge you a slightly higher interest rate in exchange.

No Cash Back

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 loan type.

You Have To Pay 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.

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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.

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. 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 Home Loan 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 (including principal and interest, and 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

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.

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 payment that was more than 30 days late.

FHA Streamline Refinance FAQs

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

What documents do I need to provide for an FHA Streamline refi?

While 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 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
  • Two months’ worth of bank statements showing you are capable of paying any extra costs

Is income verification required for an FHA Streamline Refinance?

Often, there's no income verification 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 Streamline 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 are 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 you’ve made your recent mortgage payments on time, among other factors.

The Bottom Line: 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 may allow you to refinance without an appraisal, and maybe also without income verification.

Ready to refinance? You can with Rocket Mortgage®. Get started on your application today. You can also call us at (833) 326-6018.

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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.