A guide to FHA Streamline Refinances: How they work, pros and cons
Quick insights
- An FHA streamline refinance simplifies the process of refinancing your existing FHA mortgage.
- FHA Streamline mortgages usually have credit qualifying and non-credit qualifying options.
- Homeowners must be able to see a net tangible benefit to qualify for an FHA streamline refinance.
If you have a Federal Housing Administration (FHA) loan and are interested in refinancing, the FHA streamline refinance could be a good option for you.
This program is tailored to make refinancing faster, easier and more accessible, with reduced paperwork, lower costs and minimal hassle. Designed with borrowers in mind, the streamline refinance process eliminates many of the traditional roadblocks, helping you secure better terms or lower monthly payments.
What is an FHA streamline refinance?
An FHA streamline refinance is a type of mortgage refinance offered by FHA-approved lenders and insured by the FHA.
These refinances are often considered a relatively efficient way for homeowners to refinance their existing FHA mortgages because they may require limited documentation, like proof of income or employment from the borrower, and less underwriting requirements for the lender.
Borrowers must demonstrate a history of on-time payments and show that the refinance will result in a tangible benefit, such as lower interest rate or reduced monthly payments.
How is an FHA streamline different from other refis?
The biggest difference is simplicity. True to its name, the streamline process is designed to be faster and easier for current FHA loan holders.
Unlike a traditional refinance, you won’t need a new home appraisal, which can save you both time and money. The program also features significantly less paperwork. Lenders can often use your original income and credit information, which means less documentation for you to gather.
This “streamlined” approach allows for a much quicker closing time compared to standard refinancing. If you have an FHA loan and want to lower your monthly payment with minimal hassle, the FHA streamline is for you.
How do FHA streamline refinances work?
There are two options for streamline refinances:
- Credit qualifying: Lenders check your credit score, employment and review your debt-to-income (DTI) ratio as part of the process.
- Non-credit qualifying: The lender does not review your credit score, employment or DTI ratio as part of the process.
Whether or not you can apply for the non-credit qualifying option depends on your lender and why you’re removing an original borrower. Both types allow borrowers to skip the home appraisal, a critical step in traditional refinancing.
Omitting some of the required documentation reduces the burden put on underwriting, which can expedite the application review. Skipping the home appraisal also accelerates the process.
FHA streamline program pros and cons
FHA streamline refinances come with unique benefits and risks borrowers should consider before committing. Here are some of the most important ones:
Pros
- Streamlined process: An FHA streamline refinance is viewed as a quicker approach to refinancing due to the simplified application and underwriting process.
- Potentially reduced documentation: With an FHA streamline refinance, borrowers have the option to skip documentation related to their credit and income.
- No home appraisal requirement: Qualified borrowers aren’t required to conduct a home appraisal.
- Potentially fewer fees: FHA streamlines can be less costly, since an appraisal fee and other costs may not be applicable.
- Closing cost flexibility: Some lenders allow you to use premium pricing to pay for closing costs for the loan, allowing you to refinance without the initial out-of-pocket expenses. However, you’ll pay a higher interest rate.
- Ability to refinance even if you owe more than your home is worth: A unique feature of FHA streamline refinances is that you can sometimes refinance even if your mortgage is underwater, which means that the amount you owe on the home is greater than its worth. The loan amount for your refinance will be based on the outstanding principal balance, so if your home value has dropped, you may still be able to qualify for an FHA streamline. However, it will depend on your individual financial situation.
Cons
- Closing costs: Although an FHA streamline refinance may be associated with fewer upfront costs, there are still closing costs involved, and they are not eligible to be included in the loan amount.
- Mortgage insurance requirements: FHA streamline refinances require both an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP), which is paid monthly. Depending on the original MIP payment on your FHA-insured loan, a streamline could increase the monthly MIP.
- Cash back limitations: Only $500 incidental cash back is permitted.
- Good payment history: You can only qualify for an FHA streamline refinance if you have a good payment history and aren’t delinquent on your mortgage.
Qualifying for an FHA streamline refinance
Here are the program guidelines and requirements.
Must have an FHA loan
You can only participate in the program if you’re refinancing an FHA-insured loan. Non-FHA loans aren’t eligible.
It is important to note that you may still be able to qualify for an FHA streamline refinance for an investment property or second home that is backed by an FHA loan. However, the amount you can borrow may not include the same costs as with a primary residence.
Must receive net tangible benefit
FHA policy mandates that borrowers receive a net tangible benefit to qualify for streamline refinances. Here are three ways borrowers can meet their definition: Additional requirements may apply:
- Reduce the combined rate: This is the total cost of the interest rate and your mortgage insurance premium costs.
- Change the loan type: You’re changing an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
- Reduce the loan term: This shortens the remaining amortization period on the loan, such as switching to a 15-year term from a 30-year term.
Mortgage seasoning
There are some rules related to how often or how soon you can refinance an FHA loan. Here are the policies related to the age of the mortgage and recent payments:
- At least 210 days have passed since closing on the mortgage being refinanced.
- You’ve made at least six payments on the mortgage.
- Full mortgage payments have been made for the past six months within the month the payment is due.
- No 30-day late payment for the previous six months for all mortgages on the subject property, and there’s no more than one 30-day late payment within the past year.
Your lender may have additional requirements. If you’ve participated in a mortgage forbearance plan, you may still be able to qualify for the credit qualifying option. Talk to your lender to learn more.
Documentation
Although the FHA streamline refinance is a lower documentation loan, that doesn’t mean it’s a no-documentation loan. You will still need to provide a few documents.
Depending on the type of refinance you qualify for, you may need to provide these:
- Your current mortgage note and statement
- The deed of trust or final settlement statement
- Contact information to verify your employment
- Contact information for your homeowner’s insurance agent
- Bank statements
Again, requirements vary. Bank statements may be necessary depending on how much you may need to bring to closing.
How to apply for a FHA streamline refinance
Refinancing your home doesn’t have to be complicated. You can apply for an FHA streamline refinance by first finding an FHA-approved lender in your area who offers FHA streamline refinancing (such as Chase) and discussing whether you meet the relevant requirements.
One important note here: You don’t have to refinance with your existing lender if you don’t want to. You can compare quotes with multiple lenders to find the best one for you, as long as your current loan is an FHA mortgage loan.
If you do meet the necessary qualifications for an FHA streamline refinance, you’ll be required to gather and submit all the necessary documentation requested by the lender.
How often can you FHA streamline?
Technically, there is no limit to how many times you can use the FHA streamline refinance program. However, you must meet certain conditions each time.
One is seasoning. Again, you must have made at least six monthly payments on your current loan and wait 210 days since the closing date of your last refinance or original FHA loan.
Each time you refinance, the new loan must provide a clear financial benefit, such as a lower interest rate, a switch from an adjustable-rate mortgage to a fixed rate mortgage or lower monthly payments.
You must also have a good payment history on your current FHA loan, typically with no late payments within the last six months and no more than one late payment in the last 12 months. As long as you meet these requirements, you can streamline refinance as often as it makes financial sense for you.
FHA streamline refinance FAQs
How much are closing costs for an FHA streamline refinance?
The exact amount will depend on your financial circumstances and the lender you choose, but they tend to be lower than traditional closing costs, as some fees, like the appraisal, can be skipped.
What credit score do you need for an FHA streamline refinance?
If you qualify for a non-credit qualifying streamline refinance, the lender isn’t required to check your credit score.
How many times can you do an FHA streamline refinance?
There’s no limit to how many times you can participate in the FHA streamline refinance program. However, keep in mind that each time you refinance, you’ll need to meet the net tangible benefit and mortgage seasoning requirements.
In summary
FHA streamline refinances are for existing FHA borrowers looking for a faster way to refinance their FHA mortgage with reduced documentation. Although FHA Streamline Refinances may be beneficial for some borrowers, it’s helpful to consider the possible benefits and drawbacks before you decide to go ahead.
Reach out to a home lending advisor or trusted professional to understand the requirements, qualifications and how this type of refinance may impact you.
