How a no-closing-cost refinance works
No-closing cost refinances are available, but are they worth it? Read our guide to no-cost refinances to decide which refinance is right for you.
Bradley Schnitzer
Score lower payments on your FHA loan
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.
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:
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.
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.
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.
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.
No-closing cost refinances are available, but are they worth it? Read our guide to no-cost refinances to decide which refinance is right for you.
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