A Guide For FHA Streamline Refinance: How It Works And What Rates To Expect

Refinancing your home can offer plenty of benefits, including a lower interest rate and lower monthly payments. And if you have an FHA loan, you could be eligible for an FHA Streamline Refinance. This type of refinancing can be easier, faster and cheaper than other options.

Are you wondering whether an FHA Streamline Refinance is right for you? Keep reading to learn what an FHA Streamline Refinance is, how it works, eligibility requirements and more.

What Is An FHA Streamline Refinance?

An FHA streamline refinance allows qualified homeowners with FHA loans to lower their interest rate or change their loan term through a simplified underwriting process that requires little paperwork and verification. Because lenders don't require a full underwriting, FHA streamline refinances typically close quicker than traditional refinances.

Depending on the situation, your lender may not have to verify your credit score or income. An FHA streamline refinance can even bypass the appraisal process in many cases. This type of refinance can help you lower your interest rate, shorten or extend your loan term and reduce your monthly payments.

Types Of FHA Streamline Refinances

There are two primary types of FHA Streamline Refinance loans you can choose from: credit qualifying and non-credit qualifying. Let’s look at each refinancing option more closely so you can determine which is the best option for you.

Non-Credit Qualifying

A non-credit qualifying refinance allows you to refinance your mortgage without having to provide as much documentation or go through underwriting or an appraisal on your home. As a result, you can save yourself quite a bit of time and hassle. The theory is that your history of on-time mortgage payments shows the FHA you’re a good candidate for the loan. However, because there is more risk for the lender, pricing may be slightly higher.

Credit Qualifying

A credit qualifying refinance is one that requires a lender to verify your income, check your credit report and check your debt-to-income ratio (DTI) to determine whether you qualify for the mortgage. The process is more similar to other mortgage or refinance application processes.

Even though it’s more time-consuming, there are situations where a credit qualifying refinance can make more sense. For example, if your credit score has significantly improved since you originally took out your mortgage, requalifying could help you lower your interest rate. And if you want to add another borrower to the loan, you may have to choose a credit qualifying refinance.

How FHA Streamline Refinancing Works

In some ways, an FHA streamline refinance works just like any other refinance loan. The basic premise is that you’re taking out a new mortgage to replace your current one. However, you must have an FHA loan to be eligible for an FHA streamline refinance. There are also some other key characteristics.

Reduce Your FHA Interest Rate

As with other refinance loans, an FHA streamline refinance can help you lower your mortgage interest rate. Maybe your credit score has improved since you originally got your mortgage, meaning you now qualify for a better rate. Or perhaps market interest rates have gone down (which, unfortunately, isn’t the case in 2023).

Avoid The Cost Of An Appraisal

A key benefit of an FHA streamline refinance is that you can avoid an appraisal, which you wouldn’t be able to do with other refinance loans. Instead, the FHA uses your home’s original purchase price as its value.

There are some benefits of avoiding an appraisal. First, if your home value has declined, you don’t have to worry about not being able to get the loan. Additionally, you’re able to avoid the added appraisal fee.

Switch To A Predictable Loan

If you have an adjustable-rate FHA loan, an FHA streamline refinance can be an excellent opportunity to move to a fixed-rate mortgage. This can come with several benefits, including more predictability in your interest rate and mortgage payments.

When weighing an adjustable versus fixed-rate mortgage, consider your monthly budget. Could you handle a large increase in your mortgage payment if interest rates rise? If not, it might be time to switch to a fixed-rate loan.

Receive A Net Tangible Benefit

The FHA requires that all FHA streamline refinances result in a net tangible benefit to the borrower. The benefit could be in the form of either a lower interest rate or a shorter loan term. The amount of benefit required depends on whether you have a fixed-rate or adjustable-rate loan.

Pay A Mortgage Insurance Premium

Like other FHA loans, FHA streamline refinance loans require a mortgage insurance premium. First, you’ll pay a one-time upfront mortgage insurance premium of 1.75% when you close on the loan. You’ll also pay an annual mortgage insurance premium between 0.45% and 1.05%. The annual MIP can be included in your mortgage payment, while the upfront MIP can’t.

It’s worth noting that FHA loans already require mortgage insurance premiums, so this won’t be a new addition for borrowers.

FHA Streamline Refinance Pros And Cons

FHA Streamline Refinance loans have some key advantages, but they also have a few downsides you should consider.

Pros

Here are some of the benefits you’ll get with an FHA Streamline Refinance:

• Lower monthly payment. An FHA streamline refinance can often help you get a lower monthly payment, which frees up money in your budget for other purposes.
• Lower interest rate. Depending on your credit score and the current market rates, you may be able to get a lower FHA interest rate.
• No income and credit score necessary. If you choose the non-credit qualifying FHA streamline refinance, you won’t have to go through a credit check or income verification.
• Faster turnaround time with less documentation. It doesn’t take as long to get an FHA streamline refinance, partially because there’s less documentation required.
• No home appraisal necessary: You don’t need an appraisal for an FHA streamline refinance, which saves you the fee and is especially good news for borrowers who may be underwater on their loans.

Cons

Here are some downsides to consider before getting an FHA streamline refinance:

• Only for FHA borrowers. You can only enjoy the benefits of an FHA streamline refinance if you already have an FHA loan.
• Borrowers can’t take cash out. Unlike other types of mortgages, you can’t use an FHA streamline refinance as a cash-out refinance to get money back.
• Closing costs can’t be rolled into the loan balance. You’ll be required to pay closing costs on your FHA streamline refinance and can’t roll those costs in your loan balance, which increases your upfront costs.
• Mortgage insurance premium must be paid. Just like with other FHA loans, you’ll be required to pay mortgage insurance premiums (MIPs) on your FHA streamline refinance, which will increase your upfront costs and mortgage payments.
• Difficult to remove a borrower. If you’re using an FHA streamline refinance to remove a borrower from your loan, you may have additional hoops to jump through and will need to use a credit qualifying refinance.

FHA Streamline Refinance Eligibility Requirements

To qualify for an FHA streamline refinance, you’ll be subject to some strict eligibility requirements. Here’s what you’ll need to have in place:

1. You must have an FHA-insured mortgage. You can only use an FHA streamline refinance for an existing FHA-backed mortgage.
2. You must wait at least 210 days. To qualify for an FHA streamline refinance, it must have been at least 210 days since you closed on your current FHA-backed loan.
3. You must have a history of on-time mortgage payments. You must have no more than one 30-day late payment within the past 12 months.
4. You must get a net-tangible benefit. You can only use an FHA streamline refinance if it will result in a lower interest rate or loan term.

How To Get The Best FHA Streamline Refinance Rates

FHA streamline refinance interest rates are based on a variety of factors, including the type of loan you take out and the current mortgage rates. When market interest rates are high, you can expect to have a higher rate for your loan.

Beyond market conditions, other factors that determine your rate include the amount of equity you have heading into the refinance, your credit score and the number of interest points you buy.

To qualify for the best interest rates on your FHA streamline refinance, it’s important to shop around among multiple lenders. Comparing quotes from a variety of lenders can help you find the best deal on your loan.

How To Apply For An FHA Streamline Refinance

If you’re considering applying for an FHA streamline refinance, start by shopping around for an FHA-approved lender. Because you must already have an FHA loan to use this type of refinance, you may be able to use your current lender. However, you shouldn’t assume that’s the best option.

Once you’ve found a lender you’re happy with, it’s time to gather the documents needed for the refinance process so you can go through with your application.

Documents Needed For The FHA Streamline Refinance Program

An FHA streamline refinance requires less paperwork than most mortgages, but certain documents are required. Here’s the paperwork you’ll need to refinance your home:

• A new loan application
• Mortgage verification documents, including a mortgage statement with at least 6 months of payment history, your FHA mortgage note, and your original Closing Disclosure
• Homeowners insurance information
• Contact information for your employer to verify employment
• At least 2 months of bank statements to show you can pay additional costs
• Supporting documents showing the home is your primary residence

Should You Get An FHA Streamline Refinance?

An FHA streamline refinance is a good option for FHA borrowers who want to lower their monthly payments. If your current FHA mortgage rates are higher than today’s rates or your credit score has significantly improved, you could save money by refinancing.

An FHA Streamline Refinance might also be a good option if you have an adjustable-rate mortgage and want a bit more stability and predictability with a fixed-rate mortgage.

You may also opt for an FHA streamline refinance if you owe more on your home than it’s worth or if your current loan-to-value ratio (LTV) wouldn’t allow you to qualify for a refinance loan elsewhere.

While there are certainly benefits to an FHA streamline refinance loan, it’s important to run the numbers. If your goal is to save money, do the math to make sure the new interest rate will help you save money, even when you account for the closing costs, upfront mortgage insurance and fees.

FAQs On The FHA Streamline Program

Are you considering applying for an FHA streamline refinance? Here are the answers to some frequently asked questions about the program.

Does an FHA streamline refinance affect your credit score?

A non-credit qualifying FHA streamline refinance won’t affect your credit score because you won’t need a hard credit check and your new loan will be essentially the same balance as your old one. With a credit qualifying refinance, the credit check may temporarily reduce your credit score.

Is a conventional or FHA streamline loan better?

Both FHA streamline refinances and conventional loans have some benefits, including the ability to lower your interest rate and monthly payment. A streamline refinance is a great option for many borrowers because of the streamlined process, lower costs, lack of appraisal and option for no credit check.

On the other hand, a conventional refinance could be better for someone who wants to do a cash-out refinance to borrow against their home equity. It could also be a good option for someone with more than 20% equity in their home who wants to avoid mortgage insurance.

How can you roll your closing costs into an FHA streamline refinance?

Unfortunately, an FHA streamline refinance doesn’t allow you to roll your closing costs into your loan. As a result, you’ll have to pay these costs upfront at the time of closing.

The Bottom Line: FHA Streamline Refinancing Is The Easiest Way To Get A Lower Rate And Monthly Payment

An FHA streamline refinance loan could be a valuable tool if you’re looking for ways to lower your monthly payment or interest rate. However, it’s important to do your research to understand if it’s really the right option for you.

If you’re considering refinancing your mortgage, apply to refinance your loan today.