If you currently have a Federal Housing Administration (FHA) loan, a streamline refinance could help you quickly and easily lock in a lower interest rate and reduce your monthly mortgage payment. The following guide explains how the FHA Streamline Refinance program works and some important pros and cons to consider before you make your move.
The FHA Streamline Refinance is a mortgage refinance loan that doesn’t require a home appraisal, and can often be done without a credit check or income verification. This allows homeowners with FHA loans to take advantage of the opportunity to lower their mortgage interest rates with far less time, paperwork and hassle compared to a traditional mortgage refinance.
The overall goal of an FHA Streamline is to lower the interest rate and monthly payments for a homeowner’s FHA-backed mortgage. It’s similar to a traditional refinance in that you’ll be able to choose from an adjustable-rate mortgage (ARM) or fixed-rate mortgage and can opt for a 15 or 30-year term. There are also no prepayment penalties on your FHA loan.
There are two FHA Streamline Refinance loans to choose from—credit-qualifying and non-credit-qualifying. The primary difference is whether the lender will evaluate your creditworthiness as part of the underwriting process.
When you apply for a credit-qualifying streamline refinance, the lender will typically check your credit score and your debt-to-income ratio to confirm whether you’re able to make your monthly mortgage payments.
A non-credit qualifying streamline refinance does not require a credit check or verification of income. This is the most common type of FHA Streamline loan.
Eligibility for an FHA Streamline Refinance is generally quite relaxed compared to other loan types. To qualify, you must currently have an FHA-insured mortgage and a history of on-time mortgage payments. However, there is one exception. While late payments count against you, if you’ve had your mortgage for less than one year and have not made a payment more than 30 days late, it’s still possible to qualify for an FHA Streamline loan. However, most lenders will not accept applications with any recent delinquent payments.
If you’re applying for a credit-qualifying streamline refinance, the lender will ensure that you have a minimum credit score and fall within an acceptable debt-to-income ratio.
Before applying for a streamline refinance, you must have held your loan for a minimum of 210 days and made at least six monthly payments. In addition, at least six months must have passed since your first payment due date.
In order to qualify for an FHA Streamline Refinance, there must be a “net tangible benefit.” This means that there must be some type of financial benefit that will occur as a result of the refinance, such as lowering your interest rate and/or reducing your monthly payment.
Reducing the term of the mortgage may also produce a net tangible benefit, but only if:
Like all FHA loans, an FHA Streamline Refinance also requires you to pay mortgage insurance premiums (MIP). Unless your lender offers a no-cost refinance at a higher interest rate, you will be required to pay an upfront MIP at closing. You’ll also pay an annual MIP, which is divided into monthly installments and added to your monthly mortgage payment.
While the FHA Streamline loan is one of the fastest and easiest ways to refinance your existing FHA mortgage, it may not be right for everyone. Before making your final decision, there are a few pros and cons to consider.
One of the primary benefits of completing an FHA Streamline Refinance is to reduce your interest rate and help make your monthly mortgage payments more affordable.
When you apply for your streamline refinance, the loan amount is based on what you owe, rather than your current property value. Not only does this allow you to avoid the time and cost of getting an appraisal, but it can be very beneficial for borrowers who owe more than their home is worth.
Unlike a conventional refinance, you won’t have to go through the hassle of providing income verification documents or information.
If you apply for a non-credit qualifying streamline refinance, your credit score won’t impact your ability to get approved.
The FHA Streamline Refinance is only available to those with an FHA loan. If you have a conventional mortgage, you will not qualify for this option.
When refinancing their mortgage, homeowners often take the opportunity to pull some cash equity out of their homes. However, this is not an option with an FHA Streamline loan. In this case, you may not receive more than $500 in cash back, allowing any small adjustments needed at closing.
When you took out your original FHA loan, you paid an upfront MIP. If you refinance with an FHA Streamline, you’ll have to pay this upfront cost again.
Being able to show a net tangible benefit is a requirement for all FHA Streamline loans. Some borrowers may find this benchmark difficult to meet.
FHA interest rates can change daily, based on market conditions and other factors. Visit our rates page to view the current rates.
If you think an FHA Streamline Refinance might be right for you, the next step is to contact a loan expert to verify your FHA loan eligibility. You can get started now by visiting FHALoans.com and completing our online eligibility assessment.