FHA Streamline Refinancing: Is It Right for You?

What Is an FHA Streamline Refinance and How Does It Work?

A lower mortgage payment could help you get ahead with financial goals such as paying down other debts. For some, this can be achieved by refinancing. Homeowners with existing mortgages through the Federal Housing Administration (FHA) may be eligible for an FHA streamline refinance. Learn more about these loans to see if one is right for you.

What Is an FHA Streamline Refinance?

An FHA streamline refinance is a type of mortgage refinance that may offer more favorable terms for eligible homeowners with an existing FHA loan.

This type of refinance loan typically involves a simplified process compared to other mortgage refinances, which is why it's referred to as "streamlined." There tends to be less paperwork and fewer documentation requirements for processing and approval.

How Does FHA Streamline Refinancing Work?

FHA streamline refinancing replaces your existing FHA loan with a new FHA loan, typically with a lower interest rate or more favorable loan terms. Streamline refinances are meant to be simpler and faster than traditional refinances because they usually require less documentation and no home appraisal.

Borrowers often use an FHA streamline to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM) for predictable monthly payments or to extend their loan term for lower monthly payments. When comparing your refinance options, know that a streamline refinance and cash out refinance are not the same. Streamline refinancing doesn't let you tap into your home equity beyond a small amount (up to $500) that may be refunded at closing.

FHA Streamline Refinance Key Benefits

For homeowners whose mortgages are backed by the FHA, an FHA streamline refinance could offer these advantages:

• A simplified process: The application and approval processes involve little paperwork, and closing is typically faster than with other types of refinances.
• Potential for lower payments: You can lower your monthly mortgage payments with lower interest rates.
• No credit or income checks: The FHA doesn't require credit and income verification, but some lenders may still check.
• No home appraisal: In many cases, a home appraisal won't be necessary, so you may be able to refinance even if your home value may have decreased.

Some of these benefits may only apply to the non-credit qualifying type of FHA loans.

FHA Streamline Refinance Guidelines

While the FHA streamline refi process may be simpler than other refinances, there are still requirements you must meet:

• Existing FHA-insured mortgage: Only those who are already FHA-insured mortgage holders are eligible for FHA streamline refinances.
• Loan seasoning: Your loan must be "seasoned," meaning you've made at least six payments on your existing FHA mortgage. Additionally, at least 210 days must have passed since the date of your first payment on the original loan.
• On-time payment history: You must show on-time payments (no more than 30 days late) on your existing FHA mortgage. Specifically, you cannot have any late payments in the past six months, and no more than one late payment in the past 12 months.
• Net-tangible benefit: The FHA streamline refinance has to result in a net-tangible benefit to you, which could mean improved loan terms like a lower mortgage payment.
• No cash out: Unlike with FHA cash out refinances, you can't take more than $500 out on mortgages being refinanced using the FHA streamline refinance program.
• Mortgage insurance premiums: FHA streamline refinances require both an annual mortgage insurance premium (MIP) and an upfront mortgage insurance premium.

Example of an FHA Streamline Refinance

Here's an example to show you what an FHA streamline refinance might look like for a 30-year fixed-rate FHA loan:

• Interest rate: 6%
• Loan amount: $200,000
• Monthly payment (principal and interest): $1,199

Say interest rates dropped, and you qualify for a new rate of 4.5%. If you pursue an FHA streamline refinance, here's what your new loan could look like:

• New interest rate: 4.5%
• Loan balance: $200,000
• New monthly payment (principal and interest): $1,013

In this scenario, you benefit from a streamlined process with less paperwork, quicker processing, no need for a new appraisal or income verification, and potentially no additional credit check. Plus, you could save around $186 per month, which is $2,200 a year.

To see an estimate of your new mortgage payment or see what other loan terms could be with an FHA streamline refinance, check out our refinance calculator.

How Much Does FHA Streamline Refinancing Cost?

Some costs to keep in mind when refinancing with an FHA streamline loan include:

• Closing costs: Closing costs for an FHA streamline will typically be less than a standard refinance since an appraisal is usually not required. You may be able to roll upfront MIP into the loan, but you cannot include traditional closing costs like title fees, lender fees, etc.
• Mortgage insurance: FHA streamlines require you to pay annual MIP. This is typically 0.15%-0.75% of the loan amount, depending on factors like size of the loan, repayment term, and loan-to-value ratio (LTV).

How To Apply for an FHA Streamline Refinance

Thinking of applying for this type of refinance? Here's what the process looks like.

1. Review Your Current Mortgage Loan

Make sure your existing mortgage is an FHA loan, you've been making on-time payments, and at least 210 days have passed from the closing date of your current FHA-insured mortgage.

2. Determine Your Refinance Goals

Decide whether your goal is to lower your monthly payment, change from an adjustable-rate to a fixed-rate mortgage, or shorten your loan term. Just keep in mind that FHA streamline refinances don't allow for a cash out option above $500.

4. Submit a Loan Application

After choosing a lender, you'll fill out their loan application. While FHA streamline refinances require less paperwork overall, you may still need to provide some information.

From there, your lender will start the underwriting process to verify your eligibility and make sure everything meets FHA guidelines.

5. Close on Your New Loan

Once approved, you'll close on the loan, sign the required documents, and pay any closing costs or fees. Since the FHA doesn't allow traditional closing costs to be rolled into the loan, some lenders may offer options if you're worried about paying closing costs upfront. From there, you can begin making lower monthly payments or enjoying other new loan terms.

Credit-Qualifying vs. Non-Credit-Qualifying FHA Streamline Refinance

There are two main types of FHA streamline refinance loans: credit-qualifying and non-credit-qualifying. Both offer the benefit of a quicker and easier refinance process. However, you may only be eligible for credit-qualifying if you're pursuing a loan that has much lower monthly payments:

FHA Streamline Refinancing FAQs

Grow your understanding of FHA streamline refinancing by checking out answers to these commonly asked questions.

Do You Need an Appraisal for an FHA Streamline Refinance?

No, in most cases, an appraisal isn't required for FHA streamline refinances. That means you can refinance even if your home has decreased in value since you first bought it.

Do I Have To Pay Closing Costs on an FHA Streamline Refinance?

Yes, you'll need to pay closing costs, which typically range from 2%–5% of the value of your mortgage, according to Fannie Mae. Some lenders may offer a no-cost refinance with a slightly higher interest rate.

Final Thoughts: Is an FHA Streamline Refinance a Good Idea?

An FHA streamline refinance could be a good idea if you're an existing FHA loan borrower interested in lower monthly payments or other more favorable loan terms. If you're eligible, you can also benefit from a quicker and easier process compared to traditional refinances.

Ready to take the next step with an FHA streamline refi? You can get started today.