The FHA Streamline Refinance program is a simplified version of a mortgage refinance for borrowers who already have a loan backed by the Federal Housing Administration (FHA). It’s possible for borrowers to refinance without a new property appraisal, credit check, or income verification — but owners do have to be current on their existing FHA mortgage.
The FHA Streamline Refinance does have its limitations. For example, it imposes a low limit on taking cash out, and it does not eliminate the mortgage insurance premium.
To help you determine if this program is right for you, we’ll explore exactly what is an FHA Streamline Refinance, how it works, what the requirements for applying are, and what the benefits could be.
Note: SoFi does not offer FHA Streamline Refinance at this time. However, SoFi does offer FHA loan options.
Table of Contents
- Key Points
- • The FHA Streamline Refinance program provides borrowers who already have an FHA loan with a simplified path to refinance that loan.
- • With an FHA Streamline Refinance, borrowers can refinance without an appraisal, a credit check, or an income verification, but they do have to be current on their existing FHA mortgage.
- • The main goal of an FHA Streamline Refinance is to achieve a “net tangible benefit” as defined by the Federal Housing Administration, which includes lowering monthly payments, reducing the interest rate, or shortening the term of the loan.
- • There are two main types of FHA Streamline Refinance loans: credit qualifying, which requires the lender to check your credit score, and non-credit qualifying, which does not.
- • There are some drawbacks to an FHA Streamline Refinance, including the requirement to pay mortgage insurance. If you are current on your FHA loan, it may make sense to look into other types of mortgage loans.
What Is an FHA Streamline Refinance?
An FHA Streamline Refinance refinances an existing FHA loan into a new FHA loan with limited credit and underwriting requirements for the borrower. It’s faster and sometimes cheaper to obtain than a full refinance, especially since it doesn’t require a new appraisal.
The refinance must achieve what the FHA calls a “net tangible benefit” for the borrower. Typically, this means lower monthly payments by refinancing to a lower interest rate, reducing the mortgage term, or changing the loan type from an adjustable rate to a fixed-rate.
There are two types of FHA Streamline Refinance: credit qualifying and non-credit qualifying.
Credit Qualifying
As the name implies, your credit and income history are used to qualify for an FHA Streamline Refinance and for the lowest interest rates. An appraisal isn’t needed for this type of refinance.
Non-Credit Qualifying
A non-credit qualifying mortgage doesn’t require the lender to assess your credit or ability to repay the loan. However, all borrowers on the original loan must remain on the new loan. If you would like to remove a borrower as part of the refinance, credit-qualifying procedures will have to be followed. Like the credit-qualifying refinance, a non-credit qualifying one doesn’t require an appraisal, but there are other eligibility requirements.
Recommended: FHA Loan Buyer’s Guide
Eligibility Requirements for FHA Streamline Refinance
To qualify for an FHA Streamline Refinance, the borrower must derive a “net tangible benefit” from the refinance, such as a lower interest rate, a shorter loan term, or a switch from an adjustable-rate mortgage to a fixed-rate mortgage. If you’re considering a refinance, you might want to run your numbers through an FHA loan calculator to see if a refinance will save you money.
Other requirements relate to the loan type, occupancy of the residence, credit score, and payment history.
Loan Type
The loan being refinanced must be an existing FHA loan. The refinanced loan will remain an FHA loan, which means you’ll still need to pay mortgage insurance. If you’re current on your payments, it could make sense to take a look at other types of mortgage loans beyond FHA.
Occupancy Status
An FHA Streamline Refinance can be used in the following occupancy scenarios:
• Owner-occupied one- to four-unit properties
• Investment properties with existing FHA-insured mortgages
Credit Score and Payment History
There is no credit score requirement for the FHA Streamline Refinance under the non-credit qualifying option. However, FHA Streamline Refinance rates can be better for those who use the credit-qualifying option and supply credit qualifications to the lender.
All borrowers need to have made at least six payments and wait 210 days after closing a previous loan before applying for a refinance on their FHA loan. All borrowers must also be current on their mortgage payments with no delinquencies.
Recommended: Minimum Down Payment for an FHA Loan
Benefits of an FHA Streamline Refinance
Here are a few of the ways a homeowner may benefit from the FHA Streamline Refinance program:
A Lower Interest Rate
For borrowers who bought a home when their credit was bent out of shape or interest rates were high, FHA Streamline Refinance rates could be lower than the rate they currently have.
A Different Loan Type
If you have an adjustable-rate mortgage, the FHA Streamline program can change it to a fixed-rate mortgage and help stabilize your payments.
Remove or Add a Borrower
If you need to remove a borrower from the loan, such as in the case of death, divorce, or separation, you may be able to do it with a streamline refinance. This may be done if the borrower can supply supporting documentation, such as a divorce decree.
Pay Off a Loan Faster
By refinancing to a shorter loan term, you’ll likely pay off the loan faster and save yourself a good amount of money.
Avoid an Appraisal
The FHA Streamline Refinance uses the value of the home from the original FHA mortgage, with a maximum loan amount of the existing loan balance. Because these numbers don’t need to be adjusted upwards, no new appraisal is needed.
Reduce Closing Costs
The closing costs of an FHA Streamline Refinance may be less due to the reduced requirements. For example, you do not need to pay for an appraisal with an FHA Streamline Refinance.
Close Quickly
With reduced documentation and underwriting requirements and no appraisal required, it’s possible to close on the loan relatively quickly.
FHA Streamline Refinance Process
The FHA Streamline Refinance program reduces the documentation and underwriting requirements for the lender, which usually translates into a quicker refinancing process. Here’s what you’re looking at when it comes to documentation, timeline, and costs.
Documentation Needed
Both FHA Streamline Refinancing options — credit qualifying and non-credit qualifying — will require proof that a property is your primary residence, such as a utility bill or employment documentation. If the property is a secondary residence, you will need evidence that the property has been approved from your jurisdictional FHA Homeownership Center.
For both types of loans, you’ll also need evidence of your mortgage payment history for the preceding six to 12 months. The lender will be able to see your payment history in your credit report, in which case, they’re looking for your payment history for the last six months. But if the mortgage doesn’t appear in your credit report, or the mortgage isn’t in your name, you’ll need to provide documentation of your payments for the last twelve months.
If you’re applying for a credit-qualifying mortgage, you’ll also likely need to provide the typical documentation required for the lender to run a credit check, such as:
• Credit score and history
• Proof of income and employment history
• Bank statements
• Proof of debt obligations
• Proof of assets
Lenders use this information to determine if you have enough income to qualify for the loan, what rate you qualify for, and to verify funds to close the loan.
Refinancing Timeline
An FHA Streamline Refinance takes less time because there’s no appraisal required. In a general sense, the process looks something like this:
• Find FHA-approved lenders. For an FHA Streamline Refinance, lenders must be approved by the FHA as a direct endorsement lender to qualify.
• Apply. Talk with lenders to see if your situation fits with this type of mortgage refinance. Apply with your top choices, noting the closing costs and interest rates each one offers.
• Submit documentation. Since there are fewer forms to find and submit, you may be able to complete your part of the application faster.
• Wait for underwriting. Since the loan isn’t contingent upon an appraisal, income, or credit, your loan will be ready to process more quickly than other types.
• Close on the loan. Once underwriting has approved your loan, you can close and start making your new payment.
Upfront and Closing Costs
When you refinance with an FHA loan, you’ll need to pay an upfront mortgage insurance premium on the new loan. You may be able to get a refund, which comes in the form of discounted future payments, on a part of your mortgage insurance premium that you previously paid.
You also need to pay other closing costs, such as title insurance. Since the loan amount can’t be greater than the existing loan balance, these closing costs cannot be wrapped into the loan. However, you may see lenders offer no-closing-cost loans in exchange for a higher interest rate.
The Takeaway
An FHA Streamline Refinance makes sense in certain situations, but it’s not always the right option. Going through the FHA Streamline process makes sense if you don’t want your credit pulled or you’re looking to save time or money on a refinance because it doesn’t require an appraisal, and there are fewer closing costs as a result.
However, you can’t get rid of your monthly mortgage insurance payment, and you won’t be able to refinance to a higher loan amount if you need more than $500 cash out. Borrowers commonly refinance from FHA mortgages to conventional mortgages if they want to eliminate mortgage insurance and take cash out.
It all comes back to your goals. If you want a mortgage without the mortgage insurance premium or if you need cash out, you’ll want to look into other types of mortgages. But if you want to keep an FHA mortgage and go through minimal underwriting, then an FHA Streamline Refinance may be the right move for you.
SoFi offers a wide range of FHA loan options that are easier to qualify for and may have a lower interest rate than a conventional mortgage. You can put down as little as 3.5%, making an FHA loan a great option for first-time homebuyers.
Another perk: FHA loans are assumable mortgages!
FAQ
Can you remove mortgage insurance with an FHA Streamline Refinance?
No, you can’t remove mortgage insurance with an FHA Streamline Refinance. All FHA loans require mortgage insurance, even if you’re replacing one FHA loan with another.
How long does an FHA Streamline Refinance take?
Give it around 30 days. How long it takes to close on an FHA Streamline Refinance depends a lot on your lender, but it can be quicker due to the limited underwriting requirements. When there’s no appraisal, no loan-to-value ratio, and no credit requirement, the loan can be completed faster than when it was originally funded.
Can you get cash out with an FHA Streamline Refinance?
The maximum amount of cash you can take out from an FHA Streamline Refinance is $500. If you need more, you’ll want to look for another mortgage.
Photo credit: iStock/Jacob Wackerhausen
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