FHA Streamline Refinance: Pros, Cons, Requirements and Rates
If you want to replace your existing FHA loan, consider the FHA streamline refinance program, which allows you to refinance your loan faster with less paperwork. For example, you typically won’t need a credit check or home appraisal if you qualify, saving you time and money.
However, the FHA streamline program isn’t right for everyone. Here’s what you need to know before applying.
Key takeaways
- The FHA streamline refinance program allows existing FHA borrowers to refinance their mortgages while meeting fewer underwriting requirements.
- Most applicants can skip the credit check and home appraisal, which lowers their out-of-pocket costs and leads to a faster closing.
- The FHA streamline program has some unique qualifying requirements that borrowers should understand before applying for a loan, however.
What is an FHA streamline refinance?
The Federal Housing Administration (FHA) offers the FHA streamline refinance program, which helps homeowners with an existing FHA mortgage do the following:
- Reduce their mortgage interest rate and lower their monthly payments
- Change their FHA loan type — for example, switching from an adjustable-rate mortgage (ARM) to a fixed-rate loan)
As the name suggests, the FHA streamline program offers a simplified version of the traditional refinance process, often resulting in less paperwork and a faster closing. Borrowers are even able to skip the home appraisal requirement.
Don’t have an existing FHA mortgage? Check out these alternative mortgage refinance options instead.Pros and cons of an FHA streamline refinance
| Pros | Cons |
|---|---|
Lower interest rate and monthly payment: The easiest way to lower your monthly payment is to lower your interest rate. However, you'll face restrictions if you need to add more than 12 years to your loan term to achieve a lower payment. Looser verification requirements: Depending on why you’re choosing to refinance, the lender may not have to verify your income or credit score. No home appraisal requirement: Your outstanding FHA loan balance determines your FHA streamline loan amount, rather than your current loan-to-value (LTV) ratio, so a home appraisal isn’t necessary. Faster closing process: Since there are fewer underwriting requirements with an FHA streamline refinance, it’s usually possible to close on your new loan quickly. Underwater mortgages accepted: Your FHA streamline loan amount is primarily determined by your outstanding principal loan balance, which means you may qualify to refinance even if your home is worth less than your existing loan amount. | Only available for existing FHA loans: If you don’t have an existing FHA loan, you won’t be eligible for this type of refinance. Closing costs required: The FHA doesn’t allow streamline refinance borrowers to roll their closing costs into their new loan, which means you should prepare to pay these fees out of pocket. Limited cash-out options: With the FHA streamline program, you can only get up to $500 in cash back at closing. If you'd like to borrow from your available home equity, consider a FHA cash-out refinance instead. FHA mortgage insurance required: FHA loans require both upfront and annual mortgage insurance premium (MIP) payments. When you close on your newly refinanced FHA loan, you’ll need to pay the upfront MIP again. |
What are today’s FHA streamline program rates?
Your mortgage rate is determined by multiple factors, including your credit score, down payment, loan term and whether you have a fixed or adjustable rate, as well as broader economic conditions. With that in mind, it’s important to understand that they fluctuate often and that different FHA-approved lenders may offer you different rates.
It’s a good idea to shop around for a mortgage by gathering quotes from multiple lenders before applying for a loan. Taking this step can help you secure the best mortgage rate available to you and also save you thousands in interest over your loan’s lifetime.
However, if you’re just getting started, check out current refinance rates to give you a better idea of what to expect.
FHA streamline refinance program requirements
Mortgage loan type
The FHA streamline program can only be used to refinance existing FHA mortgages, which means that you can’t use it to refinance a conventional loan or any other type of mortgage.
Net tangible benefit
You must receive a net tangible benefit to qualify for an FHA streamline refinance. This means the refinance must result in one of the following outcomes, according to FHA guidelines:
- Reducing your interest rate
- Reducing your loan term, but ensuring your monthly payment doesn’t increase by more than $50
- Changing from an ARM to a fixed-rate loan
Timing
There are also restrictions on how soon you can apply for an FHA streamline refinance after taking out your original FHA loan, including:
- You’ll need to make at least six months of mortgage payments on the loan being refinanced, even if you have an assumable loan or you have undergone a mortgage loan modification
- At least six months must have passed since your first mortgage payment due date
- At least 210 days must have passed since you closed on your loan
Payment history
The FHA requires you to have an on-time history if you’re going to refinance with the FHA streamline program. Specifically, this means you can’t have more than one 30-day late payment within the past six months.
Additionally, if your loan has been in mortgage forbearance recently, you must have completed your forbearance plan and made at least three consecutive mortgage payments since completion.
Frequently asked questions
There is no limit to the number of times you can use the FHA streamline program, as long as you meet the other qualifying criteria, including meeting the seasoning requirements and ensuring that refinancing will result in a net tangible benefit.
FHA mortgages don’t have private mortgage insurance (PMI), but they do have a similar mortgage insurance requirement called a mortgage insurance premium (MIP). If you choose to refinance through the FHA streamline program, you’ll have to pay MIP on both an upfront and annual basis.
One of the major benefits of the FHA streamline refinance program is that lenders often don’t need to check your credit score. However, a credit check is required if you have to change the property’s title when you refinance. In that case, you’ll likely need at least a 500 credit score to qualify.