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FHA Streamline Refinance: What You Need to Know

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Content was accurate at the time of publication.

If your current mortgage is backed by the Federal Housing Administration (FHA) and you’re thinking of refinancing, the FHA streamline refinance program is a quick and painless option worth considering. You won’t need income or employment documents, and there’s no minimum credit score or home appraisal requirement — making it a hassle-free way to snag a lower interest rate and reduce your monthly payment.

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What is an FHA streamline refinance?

The FHA streamline refinance is a program that allows homeowners to replace their current FHA loan with a new FHA loan that provides some financial benefit. The “streamline” part refers to the simple approval process — you can skip the income verification and home appraisal, and you won’t even need a full credit report.

The FHA offers two types of streamline refinances: noncredit-qualifying and credit-qualifying. Most borrowers choose the noncredit-qualifying option to take advantage of the easy approval process.

The content below describes the features of a noncredit-qualifying FHA streamline refinance.

Is the FHA streamline refinance program right for me?

An FHA streamline refinance might be right for you if you want to:

Reduce your FHA interest rate. You can replace a current FHA mortgage with a new FHA loan at a lower interest rate.

Pay off your loan faster. The program allows you to swap out a 30-year term for a shorter, 15-year term. The catch: Your rate can’t increase and your monthly payment can’t jump by more than $50.

Switch to a less risky loan. If you’re worried about rates rising on an adjustable-rate mortgage (ARM), you can refinance to a more predictable FHA fixed-rate mortgage.

Refinance without income or employment verification. You won’t have to worry about fluctuations in your income or starting a new job — FHA lenders don’t verify earnings or employment with this type of refinance.

Avoid the cost and hassle of an appraisal. You won’t have to tidy up the house or write a check for $400 to $700 for an FHA appraisal, because an FHA streamline doesn’t require one.

Pros and cons of an FHA streamline refinance

ProsCons
  You may receive lower monthly payments  You must have a current FHA mortgage
  You aren't required to provide income documents  You can’t qualify until you’ve made six consecutive payments on your current FHA loan
  You aren't required to verify your employment  You can’t remove a co-borrower except in cases of divorce, legal separation or death
  Your other debts won’t be considered  You can’t take more than $500 cash out
  You won’t need a home appraisal  You’ll have to pay another upfront mortgage insurance premium and continue to pay annual mortgage insurance
  You’ll provide less documentation, which may lead to a faster turnaround time  You can’t roll closing costs into your loan amount
  You’ll pay fewer closing costs (there’s no appraisal or credit report fee)
  You can add a borrower to the loan without a credit check
  You can use it for a primary residence, vacation home or a rental property
  You won't face FHA prepayment penalties

FHA streamline refinance program requirements

Although the streamline refinance program makes a refinance relatively simple, there are still requirements to meet, including an evaluation of your financial situation. The good news is that these rules aren’t designed to weed out people with low credit scores or precarious finances —they’re meant to ensure the program that helps them. Before issuing a new FHA loan, lenders will need to verify your application meets the following eight requirements.

1. You must already have an FHA loan.If you’re unsure about whether your current home loan is an FHA loan, check your monthly mortgage statement or deed of trust for an FHA case number. If you’re still not sure, contact your lender.

2. Your monthly payments must have been made on time.The most important factor is whether you’ve had any late payments over the last 12 months. A mortgage-only credit report will provide details about your payment history. If you’ve had your mortgage for less than 12 months, you must have made on-time payments the entire time.

3. Your current score will determine the rate you’re offered.There’s no minimum required credit score if you want to go with a noncredit-qualifying refinance, but the refinance may not make sense if your score isn’t high enough for you to get a better rate than you currently have.

4. Your current mortgage waiting period must be over.At least 210 days need to have passed since your original FHA mortgage was closed, and you’ll also need to have made at least six payments, before you can move ahead with a streamline refinance.

5. Your refinance must pass a “net tangible benefits” test.To make sure you’ll benefit from an FHA streamline, lenders must evaluate the “net tangible benefit” requirement. To meet the requirement, you must benefit from an FHA streamline by:

Lowering your mortgage rate by at least a half percentage point (0.5%). For example, if your current interest rate is 4%, the new rate must be 3.5% or lower.
Refinancing an ARM to a fixed-rate loan.
Choosing a shorter term, such as a 15-year fixed mortgage, to pay off your loan sooner.

6. You have enough cash to close.FHA streamline refinance guidelines don’t allow you to fold FHA closing costs into an FHA loan balance; you can only roll the cost of the interest and mortgage insurance premiums into your current mortgage. For the rest, you’ll have to prove you have enough cash to cover the closing costs. These closing costs can also be paid with a gift from a relative, close friend, employer, government housing agency or charitable organization.

7. You’ll pay FHA mortgage insurance again.You won’t get a break on FHA mortgage insurance, and will have to pay a new upfront and annual premium. However, you may be eligible for a refund of a portion of your upfront premium if you took out your current FHA mortgage within the past three years.

8. You’re living in the home as your primary residence.Lenders will ask for utility bills or some other proof that you currently occupy the home being refinanced. If the utility bills aren’t in your name, you may need to provide a pay stub or other employment document to show that you receive mail at the address of the home you’re refinancing.

How do I get the best FHA streamline refinance rates?

Don’t feel stuck with your current lender — you can refinance with a different mortgage lender if you’d like. Comparing the rates of at least three to five different FHA-approved lenders will help you find out which lender can offer the best FHA streamline rates for you. Try a rate comparison site, and call your current lender to see what terms it offers.

You’ll receive a loan estimate within three business days of applying for a refinance loan. Once you narrow your choices to the right lender, get a mortgage rate lock to secure your rate.

Each lender may have slightly different ways of verifying your information, but typically you’ll need:

  • Mortgage verification documents. You’ll likely need a mortgage statement, FHA mortgage note, closing disclosure and settlement statement from your original FHA loan.
  • Employment documents. You won’t need employment or income documents unless you do a credit-qualifying streamline, or need to provide proof of the address you’re refinancing with a pay stub or W-2.
  • Financial documents. The FHA will need proof that you have the funds to cover your closing costs. This could be bank statements or other documentation of money you received from family members, government programs or nonprofits to help you cover closing costs.
  • Residence documents. Whether the home is a primary residence, rental property or vacation home is important. Utility bills, tax returns, a driver’s license or other similar documents are common ways to prove a primary residence.
  • Closing documents. The FHA will need to know your case number and other details of your loan, which are contained in the paperwork from your original closing.

Use a no-cost refinance. The FHA streamline refinance rules don’t let you increase your loan amount to cover typical closing costs. However, you may be able to find a no-cost refinance lender that will pay the costs on your behalf if you agree to a higher interest rate on the loan. Ask the lenders you shop with if this is an option.

Choose a credit qualifying streamline refinance. One benefit of choosing a credit qualifying streamline refi is you’re allowed to add your closing costs to the loan amount. However, you’ll have to qualify based on your income and will need to verify your home’s value with an appraisal.

Factor in your UFMIP refund. If it’s been three years or less since you closed on your original FHA loan, you can get a portion (up to 68%) of your upfront mortgage insurance premium (UFMIP) refunded when you do a streamline refinance. The refund is applied as a credit to the UFMIP due on your new FHA loan. The UFMIP refund chart below shows how much you’ll receive based on how long ago your first loan closed:

If you’re trying to decide whether to go with a conventional loan or an FHA streamline loan for your refinance, know that FHA interest rates may be lower, but the APRs will likely be higher. You should probably go the conventional route if you have enough equity to avoid paying for private mortgage insurance (PMI). However, if you don’t have at least 20% equity and a minimum 620 credit score, or you can’t qualify based on your income, an FHA streamline refinance is a solid choice.

Cash-out refinance vs. FHA streamline refinance: Which should I choose?

If you’re debating between a cash-out refinance and an FHA streamline refinance, here are some pros and cons to consider:

Cash-out refinanceFHA streamline refinance
Your current income, debt and credit scores must qualify
You must pay for a home appraisal
You must be refinancing an FHA mortgage
Your loan amount, mortgage rate and payments could increase
You can access a significant amount of cash to put toward other financial goals

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