FHA Streamline Refinance: What It Is and How It Works

Written by Crystal KellyUpdated: 28th Dec 2021
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An FHA Streamline Refinance may be right for you and could lower your interest rate and monthly mortgage payments.

The process is quite literally ‘streamlined’ and has limited paperwork involved in the process. Your credit score, income, and debt-to-income ratiowill not need to be verified in most cases. Additionally, there is no requirement for another home appraisal.

The process offers quick and less expensive closings, and you can shop around for lenders who offer the best rate.

Your refinance will stay an FHA loan. The requirements? Be current on your mortgage payments, and your loan must be at least six months old.

What Is the FHA Streamline Refinance?

The FHA Streamline Refi is considered a low-doc process. Moreover, it does not require another FHA home appraisalbecause they’ve already valued your property for the original loan.

You have two options for the refinance: you can choose to qualify based on credit or qualify without running your credit.

Credit Qualifying:

  • The mortgage lender will pull your credit, calculate the debt-to-income ratio, and qualify your income.
  • Some specific refinance needs, such as removing a borrower from the loan, will require this option.
  • Choosing a credit-qualifying refinance could result in better interest rates and lower payments.

Non-Credit Qualifying:

  • No credit check is needed. The debt-to-income ratio or income is verified.
  • The process is even easier and faster without the added need for documentation.
  • If your credit score isn’t strong, this could be a good option. However, the opposite applies; you could be losing out on an even better rate based on credit qualifications.

This streamlined refinance is only available for borrowers who already have an FHA loan, but your choice of lender is up to you. Shop around for better fees and requirements.

How Does FHA Streamline Refinance Work?

Like many mortgage refinance options, you replace your existing FHA mortgage loan with another FHA mortgage loan, often with better interest rates and a lower monthly payment.

The FHA Streamline Refinance is offered as a fixed-rate(meaning the interest rate doesn’t change) or an adjustable-rate mortgage (your interest rate can and will fluctuate with current market rates).

FHA Streamline comes as a 15 year or 30-year term, but it’s important to note that the FHA Streamline cannot be used to refinance your 30-year mortgage into a 15-year mortgage. You can take a 15-year mortgage and refinance it into a 30 year, however.

This makes your payments lower, but you’ll be paying these payments much longer and paying more for the loan in the long run.

The FHA Streamline Refinance rates are the same as FHA rates for purchasing a home; no penalties for having little equity or being upside down in your loan (meaning the value of your house is less than how much you owe on your mortgage).

>> More: What Is Home Equity?

FHA Streamline Refinance Guidelines

The FHA Streamline Refinance is a much simpler refinance process than most, but there are still guidelines.

  • You must be current on your current FHA mortgage.
  • There are nocash-out refinances with this Streamline Refi; the rules state that no more than $500 in cash can go to the borrower in the refinance, and that is to provide some relief if there are changes at the closing.
  • Your current mortgage must be at least six months old, but there are some exceptions for those using the credit-qualifying option and have life changes that demand a refinance, such as divorce.
  • You are required to pay the closing costs.
  • The FHA Streamline Refinance must be financially beneficial to you. This is called a Net Tangible Benefit. The rules require that the refi reduces your interest rate and/or monthly payment, or, if applicable, a refi from an adjustable-rate mortgage to a fixed-rate mortgage is considered a benefit to you as well.

FHA Streamline Refinance Costs

The costs associated with the FHA Streamline Refinance are straightforward, but because of the Net Tangible Benefit requirement, it is important to calculate these figures and make sure you will still benefit from the refinance.

You will need to pay a new mortgage insurance premium (MIP) at closing. This upfront premium is 1.75%, but if your original loan was before April of 2009, this premium is just 0.01%.

However, if you are within three years of your original purchase, there is a refund associated with your original MIP, so that combined with a reduced interest rate, could still create a Net Tangible Benefit.

You can wrap this upfront MIP into the refinance, but your closing costs cannot be added in.

Those are additional costs associated with the FHA Streamline Refinance, and while those are paid at closing.

What Documents Do I Need for FHA Streamline Refinance?

Less paperwork is a highlight of this refinance option. You still have to submit some documentation, but it’s significantly less than most refinance processes.

  • An application for the loan
  • Your current mortgage statement shows at least a six-month payment history and that you are current in your payments.
  • Utility bills show that the home is your primary residence.
  • Two months of bank statements that show you can afford the closing costs.
  • Information on your employer for verification from your lender. They may not verify your income, but the lender may want to verify your employment.

If you choose the credit-qualifying option, you will need to qualify with your income and credit score.

Advantages and Disadvantages of the FHA Streamline Refinance

Pros:

  • No home appraisal: this can save time and money on the closing costs. This is also beneficial for those who are upside-down in their mortgage-owing more than their home is valued for. It allows for unlimited Loan to Value home loans within this program.
  • Minimal documentation requirements: Both credit qualifying and non-credit qualifying loan options offer less documentation overall.
  • FHA Mortgage Insurance Premium refund: If your upfront MIP is less than three years old, you can get a refund of those premiums. It runs on a sliding scale, so the newer the original loan, the more MIP refund you’ll get back.
  • It’s easy to qualify for this loan: You don’t have requirements such as equity in your home, and you don’t need a credit check.
  • The net tangible benefit rule means that the FHA Streamline Refinance has to be of financial benefit to you; you’ll save money monthly with a lower interest rate.

Cons:

  • Closing costs are required and cannot be rolled into your loan.
  • MIP- Mortgage Insurance Premiums are due upfront at 1.75% at closing, in addition to an annual premium.
  • There is no cash-out option with this refinance. You can’t take out a larger loan to get cashback at closing to cover your closing costs or for other uses.

The FHA Streamline Refinance offers some of the simplest and beneficial end results for a refinance, but it doesn’t come without some obstacles such as closing costs and your MIP costs.

But for many borrowers, the ability to refinance an existing FHA loan into a new, lower interest FHA loan without income checks, credit checks, and appraisals is a green light to reducing their monthly mortgage payments.

Bottom Line: FHA Streamline Refinance

FHA Streamline Refinance is a viable option if you meet the requirements and are looking to lower your monthly mortgage payments. It is important to compare options and partner with a reputable lender.

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Cris Kelly
Crystal Kelly

Crystal Kelly is an editor and writer specializing in personal finance. As a renowned journalist, she contributes to multiple leading financial education and real estate publications. She attended the University of Maryland where she majored in English and minored in Art History. Hailing from Shoreacres, TX, Crystal provides content that helps you make simple financial decisions with confidence. Her area of expertise spans mortgages, loans, and credit cards.