The FHA Streamline Refinancing Program
If you have an existing FHA loan, the FHA Streamline Refinance is the most straightforward approach to obtain a reduced interest rate and monthly payment.
The FHA Streamline program is a “low-doc” refinancing with minimal documentation requirements. The lender is not required to check your income or credit, nor is a house appraisal required.
This implies that a Streamline Refinance closes faster and has lower closing fees than other loans.
FHA Streamline provides FHA borrowers quicker access to today’s low-interest rates than most other homeowners.
What Is a FHA Streamline Refinance Loan?
The FHA Streamline program is an exclusive refinancing option for homeowners with current FHA mortgages. FHA Streamline is the quickest and easiest option for FHA-insured homeowners to refinance their mortgages at today’s historically low-interest rates.
Among the advantages of the FHA Streamline program are the following:
- Cheap refinancing rates: The current average FHA loan rate is 5.875% (6.305% APR).* This is a low rate compared to most of the mortgage market.
- If you obtained an FHA loan between 2010 and 2015, you could use FHA streamline refinancing to get today’s reduced yearly mortgage insurance premiums.
- Homeowners who use the FHA Streamline Refinance may get a reimbursement of up to 68% of their prepaid mortgage insurance in the form of a MIP reduction on the new loan.
- You might utilize the FHA Streamline Refinance without an appraisal, even if your current mortgage is underwater.
- You may qualify for FHA Streamline refinancing even if you lost your job or experienced a wage reduction because there is no verification of employment or income.
- A good credit score will allow you to utilize the FHA Streamline non-credit qualifying alternative. This is nearly inconceivable with other refinancing loans.
If you already have an FHA loan and wish to refinance into a reduced interest rate, the FHA Streamline program should be your first visit. Its advantages are virtually unrivaled by any other refinancing alternative.
Rates for FHA Streamline Refinance
According to our lender network, today’s average 30-year FHA rate is 5.875% (6.305% APR). However, the FHA mortgage insurance premium increases annual expenditures by 0.85%. This is applicable to Streamline Refinances as well.
How the FHA Streamline Works
The FHA Streamline program functions similarly to other refinancing products. You replace your old loan with a new FHA mortgage – often with a better interest rate and lower monthly payment. For eligibility, your current mortgage must be FHA-backed.
The FHA Streamline mortgage is available with a fixed or adjustable interest rate and a 15- or 30-year term, and there is no FHA prepayment penalty.
It is impossible to convert a 30-year mortgage into a 15-year one using the FHA Streamline program.
However, it may convert a 15-year loan into a 30-year one. This reduces homeowners’ monthly payments even further. However, it also extends your interest payments, meaning you may pay more over time.
The rates for the FHA Streamline Refinance are the same as those for FHA home purchases. There is no penalty for having negative equity or being underwater.
Loan Types for FHA Streamline Refinance
The Federal Housing Administration provides two Streamline Refinance choices:
- Credit-Qualifying Streamline Refinance: Lenders will evaluate your credit score and debt-to-income ratio to see if you can afford the loan’s monthly installments.
- Non-Credit Qualifying Streamline Refinancing: This refinance can be approved without a credit check or income verification. This is the most prevalent choice.
Why would somebody choose the credit qualification option and go through the entire underwriting process?
Well, there are instances where credit qualification is required, such as when adding a new co-borrower or withdrawing an existing one.
In other instances, reapplying for the loan might save you money. For example, if your credit profile has significantly improved after you obtained your initial loan, you may be eligible for a lower interest rate.
What Paperwork Is Required for an FHA Streamline Refinance?
The FHA Streamline Refinance is a “low-doc” refinance loan that needs less documentation than most conventional mortgages. However, you will still need the following documentation:
- An application for a loan
- A current mortgage statement displaying six months of payment history
- Information regarding your employer (the lender may verify employment but not income)
- Two months’ worth of bank statements demonstrating the ability to pay closing fees out of pocket.
- Utility bills demonstrating primary residential status
If you use the FHA’s Streamline Refinance with credit qualification, you will be required to “requalify” using your income and credit score. This option is necessary if you wish to remove a cosigner from the loan.
Advantages of FHA Streamline Refinance
We’ve noted that the FHA Streamline program can reduce your interest rate and monthly mortgage payment. However, there are additional advantages to this refinancing arrangement. For instance:
- No house appraisal is required
- Very minimal paperwork is required.
- You might receive a partial MIP refund (applies to the upfront MIP cost of the new loan).
Let’s examine each of these in further detail.
No Home Appraisal
The FHA Streamline does not need a house appraisal, which is the primary distinction between it and other conventional mortgage refinancing choices.
Instead, the FHA will let you utilize the initial purchase price as the current valuation of your property, regardless of what the home is truly worth today.
FHA’s Streamline Refinance program does not care whether you are underwater on your mortgage in this fashion. Instead, the policy promotes submerged refinance.
Even if you owe twice as much as your property is now worth, FHA may let you refinance your home without incurring additional fees or penalties.
The appraisal waiver, which allows limitless loan-to-value (LTV) house loans under the FHA Streamline Refinance program, has been a major hit with U.S. homeowners.
Less Documentation
FHA Streamline Refinance loans are relatively simple to obtain, especially those that do not need a minimum credit score.
The non-credit qualifying Streamline Refinance does not require most normal mortgage verifications.
According to the official FHA mortgage guidelines:
- There is no requirement for employment verification with an FHA Streamline Refinance.
- There is no requirement for income verification with an FHA Streamline Refinance.
- A credit check is not required for an FHA Streamline Refinance (though most lenders will check credit)
When everything is taken into account, you can:
- Not have a job
- Have no income
- Have a poor credit score
- Have no home equity
However, you may still be eligible for the FHA Streamline Refinance’s non-credit qualifying alternative.
That is not as absurd as it may sound, by the way.
To see why the FHA Streamline Refinance is a good program, we must recall that the FHA’s primary function is to guarantee mortgages, not to “create” them.
It is in the FHA’s best interest to assist as many individuals as possible in qualifying for today’s historically low mortgage rates. Theoretically, lower mortgage rates result in reduced monthly payments, which leads to fewer loan defaults.
This is beneficial for homeowners seeking reduced mortgage rates and the FHA. With fewer loan failures, the FHA must pay lenders fewer insurance claims.
In summary, the FHA benefits from your assistance, which explains why the conditions for the Streamline refinance are so lax.
FHA MIP Refund
FHA-backed homeowners who refinance within the first three years of the loan’s inception receive an extra incentive.
The FHA will reimburse a portion of the upfront mortgage insurance premium (UFMIP) you paid when you initially obtained an FHA loan.
As the three-year period passes, the size of the return shrinks.
For example, a homeowner who refinances an FHA mortgage after 11 months receives a reimbursement of 60% of their initial FHA UFMIP.
After 30 days, the reimbursement is reduced to 58%. After the next thirty days, it falls to 56%, etc.
Because of this, it is seldom advisable to “wait to refinance” an FHA loan.
With the FHA Streamline Refinance program, the earlier you refinance, the greater your return and the smaller your new mortgage’s total loan amount.
This reduces the monthly payment and protects the home equity, two enormous benefits.
Are You Qualified to Obtain an FHA Streamline Refinance?
Although the FHA Streamline Refinance avoids conventional mortgage requirements, such as income verification and credit qualification, the program does impose minimal requirements on applicants.
You need to demonstrate the following:
- Three months of mortgage payments made on time
- At least 210 days must have passed since your previous buy or refinancing.
- There is a substantial financial advantage to refinancing.
- In most instances, you may reduce your interest rate by at least 0.50%.
The following are the official FHA Streamline Refinance guidelines. Not all mortgage lenders will adhere to the Federal Housing Administration’s formal underwriting requirements.
Some lenders may impose minimum credit scores or underwriting requirements for FHA Streamline mortgages.
If your current lender requires an appraisal or income verification, you can search for a more forgiving lender that complies with the FHA’s Streamline refinancing minimum standards.
Three Months of Flawless Payment History Are Essential
The FHA’s primary objective is to lower the overall risk of its lending pool. Therefore, the most important qualification requirement for the Streamline Refinance program is that homeowners must have a flawless payment history dating back at least three months.
This refinancing option is unavailable to homeowners with 30-day, 60-day, or 90-day past-due payments.
One late mortgage payment is permitted during the last year. Loans must be current at the closing date.
210-Day “Waiting Time” Required Following Purchase or Refinance.
To qualify for a Streamline Refinance, the FHA requires that borrowers make six on-time mortgage payments on their current FHA-insured loan and that 210 days have passed since the most recent closing.
Refinancing Must Serve a “Purpose”
Applicants for Streamline Refinance must establish a “Net Tangible Advantage” from the refinance, i.e., that the new loan will provide a clear financial benefit.
Net Tangible Benefit is loosely defined as a reduction in the “combined rate” of at least 0.5%.
For example, a homeowner with an FHA loan opened in May 2019 with a rate of 4.00% and an annual mortgage insurance payment equal to 0.85% of the mortgage amount would pay a yearly premium of 0.85% of the mortgage amount.
- The overall rate is 4.85 percent
- The rate quotation for a Streamline Refinance is 3.25 percent with a MIP of 0.85 percent.
- The new combined rate would be 4.10 percent, or 0.75 percent less than the current rate. This FHA refinancing would be approved.
The ability to refinance from an adjustable-rate mortgage to a fixed-rate mortgage is another permissible Net Tangible Benefit.
This is an advantage since fixed-rate mortgages offer a lower risk of default due to their predictable rates and payments.
Using your equity to withdraw cash is not a permissible Net Tangible Benefit, but the FHA does provide a cash-out refinancing loan, which we will explore below.
Income and Employment Are Not Verified
Unless the borrower requires a credit-qualifying loan, the FHA does not need verification of a borrower’s job or yearly income as part of the FHA Streamline procedure.
No job verification, paystubs, W-2s, or tax returns are necessary to approve Streamline loans that do not qualify based on credit score.
Credit Ratings Are Not Checked
As part of the FHA Streamline Refinance program, the FHA does not verify credit scores unless you choose the credit qualifying option. Instead, it employs past payment performance as a predictor of future loan performance.
This implies that FICO ratings of 640, 620, 580, and even 500 may be qualified for Streamline Refis.
However, some lenders establish their minimum standards. Check the credit requirements of the lender before applying.
Loan Balances Can Not Increase to Cover Loan Fees
FHA does not permit the addition of closing expenses to the new loan sum in the case of an FHA Streamline Refinance.
According to Jon Meyer, The Mortgage Reports’ loan expert and qualified MLO, this is a significant drawback for most homeowners since it may become expensive.
The maximum mortgage amount on your new loan equals your outstanding principle balance plus your upfront mortgage insurance cost.
All other costs, including origination fees, title fees, prepayment taxes, and insurance, must be paid by the borrower in cash at closing or refunded in full by the loan officer.
This option is known as a “no-cost FHA Streamline,” and your lender pays for the closing fees. In exchange, you pay a higher interest rate. Therefore, you will pay more during the life of the loan.
No Cash-Out Is Permitted With FHA Streamline
You cannot withdraw more cash while refinancing with an FHA Streamline loan. This refinance primarily intended to reduce the homeowner’s interest rate and monthly payment.
However, the FHA also offers the cash-out refinance as an alternative refinancing option.
It allows you to borrow up to 80% of the value of your property. If that sum exceeds your outstanding loan debt, you receive the difference in cash.
This money can be used for any reason, including paying off debt, making home improvements, or creating an emergency fund.
What Happens to FHA Mortgage Insurance if Streamline Refinance Is Utilized?
Like other FHA loans, the FHA Streamline Refinance requires borrowers to pay mortgage insurance.
You cannot use the FHA Streamline Refinance to remove mortgage insurance (MIP) even if you’ve developed equity in your house since you purchased it.
FHA borrowers must make two different types of mortgage insurance payments:
- The upfront mortgage insurance premium (UFMIP) is 1.75 percent of the loan amount (not due as cash at closing)
- Annual Mortgage Insurance Premium (MIP) = 0.85% of the loan amount, paid monthly with your mortgage in 12 payments.
This is true for both Streamline Refinance and purchase loans.
Meyer adds, “For borrowers eligible for a MIP return, the refund can be applied to this increased up-front amount.”
Upfront Mortgage Insurance Premium (UFMIP)
Only some refinancing families will pay the entire upfront MIP payment.
As demonstrated in the table above, borrowers who refinance their FHA loan within three years are eligible for an upfront MIP return.
This can drastically reduce the amount of UFMIP applied to your new loan, reducing the total amount you must pay.
Annual Premium for Mortgage Insurance (MIP)
The yearly FHA Streamline Refinance MIP cost is as follows:
- For 15- and 30-year loans with an LTV greater than 90%, the yearly MIP is 0.85%, payable for the life of the loan.
- For 15- and 30-year loans with an LTV below 90%, the yearly MIP is 0.85% and is due for 11 years.
If you obtained your existing FHA loan before January 2015, when MIP rates were higher, a Streamline Refinance might cut your MIP rate.
The age of your loan will impact how much you may save, as the FHA’s MIP standards have changed significantly throughout the years.
Consider initiating a refinancing immediately if your existing FHA MIP is more than what is listed above to benefit from a new, reduced FHA MIP.
Policy for FHA MIP Cancellation
The FHA mandates that most homeowners pay mortgage insurance for the loan duration.
After 11 years, only homeowners with an initial loan-to-value ratio of 90% or less can cancel their mortgage insurance. (A LTV of 90% or less indicates a minimum 10% down payment.)
Additionally, refinancing homeowners might provide cash to closing to lessen their loan debt and alter their MIP disposition. However, only some have the financial resources to make such a shift.
When considering an FHA Streamline Refinance, you should investigate alternative mortgage refinancing options, such as conventional mortgage loans via Fannie Mae or Freddie Mac.
You can eliminate private mortgage insurance (PMI) whenever your loan-to-value ratio goes below 80% if you qualify for a conventional loan with a low-interest rate.
FHA permits homeowners to refinance into conventional loans to eliminate FHA MIP.
FHA Cash-Out Refi vs FHA Streamline
The FHA cash-out refinance has a clear advantage over FHA Streamline Refinance loans: it allows you to withdraw cash from your home’s equity.
Say you owe $250,000 on your existing mortgage, but your property is worth $350,000. The $100,000 difference between these two figures represents your home equity.
You might access a portion of your equity through a cash-out loan while refinancing your mortgage. Consequently, your loan amount would grow.
With a Streamline Refinance, you cannot raise your loan amount to get cash back, even if you have the equity to support a higher loan.
Consider the following if you are considering a cash-out refinancing instead of a Streamline loan:
- You must qualify based on your debt, income, and credit rating.
- You’ll need a new home appraisal to verify the worth of your property.
- It is possible to refinance any form of mortgage, not only FHA loans.
- As your loan balance increases, so will your yearly MIP.
- You will only be able to access up to 80% of your equity.
- Since cash-out loans are riskier, your mortgage rate may increase.
A Streamline loan is simple so that it avoids most of the additional stages required by cash-out loans.
FAQ About FHA Streamline Refinance
What Is the Streamline Loan Program?
The FHA Streamline refinancing program is restricted to current FHA homeowners. It is quicker and simpler than most refinance programs, requiring no proof of income, credit, or house assessment. An FHA Streamline Refinance can help homeowners reduce their yearly mortgage insurance premium (MIP) or receive a return of a portion of their initial MIP payment. Therefore, our refinancing program is tailored to your needs if you get an FHA loan as a first-time or subsequent buyer.
How Does the FHA Streamline Refinance Program Function?
The FHA Streamline Refinance reduces your interest rate and monthly payment on your mortgage. If you have a 30-year FHA loan, you can use FHA Streamline to refinance into a 30-year loan with a lower interest rate. Borrowers with a 15-year FHA loan can refinance into a 15- or 30-year loan. The FHA Streamline program does not waive the mortgage insurance premium (MIP) for borrowers who pay it. However, yearly MIP rates may decline depending on when the loan originated.
Do I Have to Pay Closing Expenses for an FHA Streamline Refinance?
The borrower is responsible for paying closing costs on an FHA Streamline Refinance. Unlike other refinances, these expenses cannot be added to the loan amount. Typical FHA Streamline closing fees are the same as those for conventional mortgages: 2 to 5 percent of the loan amount or $3,000 to $7,500 for a $150,000 loan. You are not required to pay for an appraisal on an FHA Streamline loan, which might save you between $500 and $1,000 in closing expenses.
Does an FHA Streamline Refinance Eliminate PMI Coverage?
No, mortgage insurance is not eliminated with the FHA Streamline Refinance. Refinanced FHA loans continue to be subject to the FHA’s yearly mortgage insurance, in addition to a new upfront mortgage insurance premium equivalent to 1.75 percent of the loan amount. The upfront charge is applied to the amount borrowed. However, if you utilize the FHA Streamline Refinance within three years of the loan’s origination, a portion of your initial UFMIP cost will be reimbursed, reducing the overall mortgage amount.
Who Is Eligible for FHA Streamline Refinancing?
Your current mortgage must be FHA-insured to be eligible for an FHA Streamline Refinance. If you are uncertain, consult with your lender. In addition, FHA requires three months of on-time mortgage payments and a 210-day waiting period since the last closing date (either purchase or refinance). The FHA Streamline Refinance must ultimately serve a purpose. This often necessitates a reduction of at least 0.50 percent in your total interest and insurance rate.
Does the FHA Streamline Loan Program Involve a Credit Check?
The FHA Streamline does not technically need a credit check. This implies that homeowners might use the Streamline Refinance even if their credit score has dropped below the 580-point minimum required for FHA loans. However, certain creditors may still examine your credit report. Therefore, if your credit score is below average, you should shop.
Can You Withdraw Cash With an FHA Streamline?
No, cash-out refinancing is not permitted with an FHA Streamline Refinance.
When Is an FHA Streamline Refinance Available?
210 days after their previous closing, FHA homeowners may qualify for a Streamline Refinance. This indicates that you must have made six consecutive mortgage payments since purchasing or refinancing your house.
Can I Utilize an FHA Streamline Loan More Than Once?
Yes, the FHA Streamline Refinance can be utilized several times. You need to fulfill FHA’s requirements, which are that it has been at least 210 days since your previous refinancing, that you’ve paid your past three payments on time, and that you can reduce your interest rate by at least 0.50 percent.
What Advantages Does an FHA Streamline Offer?
The greatest advantage of an FHA Streamline Refinance is the ability to refinance your FHA loan to a cheaper interest rate and monthly payment. You may save money by eliminating your current higher interest rate with less effort than conventional refinancing choices. A further advantage of the FHA Streamline program is that there is no requirement for a house appraisal, allowing you to refinance into a cheaper FHA mortgage rate even if you have very little equity or your loan is underwater.
Does the FHA Streamline Refinance Make Sense?
The FHA Streamline Refinance is worthwhile if you can significantly reduce your mortgage rate and monthly payment. FHA has now reduced its yearly mortgage insurance costs, making it a desirable option for homeowners who bought or refinanced between 2010 and 2015. Refinancing a mortgage originated before 2015 via the FHA streamline program can reduce your yearly mortgage insurance premium from over 1 percent to only 0.85 percent.
How Can I Remove PMI From My FHA Loan?
If you put down 10 percent or more, your FHA mortgage insurance premium (MIP) lasts for 11 years. If your down payment was less than 10 percent, it lasts for the whole loan term. The only option to eliminate FHA mortgage insurance is to refinance your existing FHA loan into a conventional loan without private mortgage insurance (PMI). To do this, you must have at least 20% equity in your house and a credit score of 620 or higher. You must also pay closing expenses and complete the underwriting procedure for the new loan.
Does a Streamline Refinance Have an Impact on Your Credit Score?
A non-credit-qualifying FHA Streamline Refinance Loan will not significantly impact your credit score because your new loan total will be about equivalent to your old loan balance. Since the FICO scoring algorithm evaluates the age of your loans, replacing an older mortgage with a new one may cause you to lose a few points. However, the impact is often minor, especially if you’ve held your existing loan for a few years or less. The credit-qualifying Streamline Refinance will examine your credit score, which may temporarily reduce it.
What Disadvantages Does an FHA Streamline Refinance Have?
The greatest benefit of the FHA Streamline Refinance is its simplicity. However, this may also be considered its biggest weakness. Because you bypass the house assessment and, in many situations, the credit qualification process, you cannot raise your loan amount to receive cash back. Another disadvantage is that you cannot refinance out of mortgage insurance, unlike regular loans.
How Long Does It Take for an FHA Streamline Refinance?
The FHA Streamline Refinance does not need a property appraisal. This implies you can close the loan about one week earlier than with other refinancing loans. However, finalizing the new loan would likely take four to five weeks.
Are You FHA Streamline Eligible?
Low FHA mortgage rates and a Streamline Refinance generally expedite the closing process for homeowners. Remember that your FHA MIP return will be larger the faster you close.
Check the current FHA refinancing rates to discover how much you may save.
