What is an FHA streamline refinance?

A Federal Housing Administration (FHA) streamline refinance is a simplified refinancing option specifically available to FHA loan borrowers. Streamline refinances are often faster and more affordable than refinancing with a conventional loan.

If you want a lower monthly payment on your mortgage, consider refinancing. Refinancing replaces your existing loan and its terms (like your interest rate) with a new loan that generally has better terms.

Key takeaways

• An FHA streamline refinance could help you lower the monthly payments on your FHA loan.
• Most FHA streamline refinances are “low-doc,” which means you won’t have to submit much paperwork.
• FHA refinance rates may be lower than conventional loan rates.
• There are closing costs associated with this type of refinancing.

FHA streamline refinance guidelines

An FHA streamline refinance is a refinancing option for borrowers with existing FHA loans. With a streamline refinance, you may be able to secure a lower interest rate and reduce your monthly mortgage payments in addition to other possible benefits.

In order to be eligible for an FHA streamline refinance: 

• Your existing mortgage loan must be an FHA-insured loan.
• You can’t be delinquent on the existing loan.
• The refinance must also offer a net tangible benefit to you, such as a lower interest rate (including mortgage insurance premiums), a shorter loan term that saves you money overall or a change from an adjustable rate to a fixed rate.

There are two types of FHA streamline refinances: credit qualifying and noncredit qualifying. With credit qualifying refis, the lender checks your credit and verifies your income again to determine if your debt-to-income ratio makes you eligible. A noncredit qualifying refinance doesn’t have these credit and income documentation requirements.

You can generally choose the noncredit qualifying route unless you’re refinancing to remove another borrower from the loan or you haven’t kept up with payments. In these instances, you’ll need to pursue a credit qualifying option.

FHA streamline refinance pros and cons

An FHA streamline refinance may be appealing if you’re looking for lower rates on your existing FHA loan, but there are some potential drawbacks.

Benefits

• May secure a lower interest rate: If you decide to refinance when rates are low, you may get a lower interest rate than you had on your original FHA loan. This could reduce your monthly payments.
• Minimal documentation requirements: As the name implies, a streamline refinance has fewer documentation requirements than other types of mortgage options. However, you will still need to submit an application and some financial documents (like your mortgage payment history).
• No appraisal required: You won’t have to get a home appraisal, unlike with other refinancing options. This reduces your closing costs (appraisals can cost anywhere between $200 and $600) and cuts down on the time required to close on the loan. FHA streamline refinances typically take 30 to 45 days to close, according to Ashley McKenzie-Sharpe, senior mortgage planner at Fairway Independent Mortgage Corporation.

Things to consider

• Upfront costs: You will have to pay closing costs for your new loan as well as upfront mortgage insurance premiums. Some lenders offer “no-cost” refinances, which would allow you to avoid paying upfront, but you’ll have to pay a higher interest rate in exchange for that convenience.
• No cash-out: Some refinancing alternatives let you replace your existing loan balance with a larger loan amount so that you receive a sum of cash at closing. This is generally used in cases where someone has built up equity in their home. However, an FHA streamline refinance is essentially a no-cash-out option, which means you’ll refinance for a loan amount less than or equal to your remaining loan balance.
• Payment history requirement: You’ll need to have made at least six monthly payments on your existing FHA loan to qualify. Your loan will also need to be current, with no more than one 30-day late payment within the past six months. An FHA streamline refinance may not be an option for borrowers attempting to avoid foreclosure.

FHA streamline refinance rates

You may be able to get a better rate by refinancing your original FHA loan, depending on the current rates. Rates change constantly, but at the time of publishing, you could secure a rate as low as 5.4% APR for a 30-year fixed-rate streamline loan (currently, a 30-year fixed conventional refinance loan has a slightly higher rate: 5.42% APR).

Keep in mind that there are upfront costs with an FHA streamline refinance. You’ll have to pay closing costs, which are due at closing and cannot be lumped into the loan balance (though you may be able to avoid them for now in exchange for a higher interest rate).

In addition, you’ll have to pay upfront mortgage insurance premiums (MIPs), which can be 1.75% of the loan amount (though partial refunds may be available). Typical closing costs range from $1,000 to $4,500.

Bottom line

An FHA streamline refinance can help borrowers with existing FHA loans reduce their monthly mortgage payments. One of the biggest benefits of a streamline refinance is that you don’t have to pay for an appraisal (like you would with other refinancing options).

Also, the process can move fairly quickly. It could be a good option if your original loan has an adjustable rate and you want a fixed rate. Depending on the market, you may be able to lock in a lower interest rate overall.

Just remember — even though a streamline refinance may not require much documentation, there are still requirements to qualify. There are also associated costs that you’ll either have to pay upfront or as interest later on. If you’re interested in refinancing, make sure you consider all your options and shop around for the lowest rate you can qualify for.