How does the FHA streamline program work?
An FHA streamline refinance is a mortgage product that applies to homeowners with FHA loans who want to switch to another FHA loan with better terms. If interest rates have dropped substantially or the homeowner wants to move to a longer or shorter repayment term, for example, an FHA streamline refinance can help them do just that.
The term "streamline refinance" refers to the amount of underwriting and borrower credit documentation required for this type of loan. A streamline refinance typically comes with two options:
- Credit qualifying: These loans require a credit check and usually involve an income verification process.
- Non-credit qualifying: The lender won't check your credit and typically won't verify your income.
You can generally choose the non-credit qualifying route unless you’re refinancing to remove another borrower from the loan. In this instance, you’ll have to pursue the credit qualifying option since you’ll need to prove you can handle the loan on your own. Credit qualifying loans can come with a more significant interest rate reduction, which is worth considering if your end goal is to save money and you have good credit.
Keep in mind that there are also upfront costs associated with an FHA streamline refinance, including:
- Closing costs: These (as the name suggests) are due at closing and vary based on the loan amount.
- Upfront mortgage insurance premium (UFMIP): This is 1.75% of the loan amount (though partial refunds may be available).
» MORE: Best FHA loan lenders
FHA streamline 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 total monthly mortgage payment. You may also pursue this type of refinance in order to switch up your loan term from what you have now.
To be eligible for an FHA streamline refinance, you must meet the following requirements:
You have an FHA loan already
You aren’t delinquent on the existing loan
The streamline refinance gives you a net tangible benefit
Jay Dacey, president of Jay Dacey Mortgage Team in St. Paul, Minnesota, says that anyone who meets the net tangible benefit requirement should at least consider a streamline refinance.
You’re not pursuing the refinance for cash
You can pay closing costs
Your original FHA loan is at least seven months old
Streamline refinance pros and cons
An FHA streamline refinance typically takes 30 to 45 days to close, according to Ashley McKenzie-Sharpe, manager of Highlands Residential Mortgage’s branch in Winston-Salem, North Carolina. It may be appealing if you’re looking for lower rates on your existing FHA loan, but there are some potential drawbacks.
Pros
The pros of an FHA streamline refinance include:
- You may secure a lower interest rate and/or reduce your monthly payment.
- It can involve minimal documentation prep.
- A home appraisal usually isn’t necessary.
- You might be able to avoid paying out-of-pocket closing costs.
Cons
The cons of an FHA streamline refinance are:
- The amount of cash you can take out is limited.
- Payment history requirements are strict.
- Your loan must be current.
FHA streamline refinance rates
You may be able to get a better rate by refinancing your original FHA loan, although that seems relatively unlikely at the moment since the Fed has raised interest rates many times throughout 2022 and 2023. That said, rates change constantly, so it may be worth shopping around and exploring your options.
You can expect a 30-year fixed-rate refinance loan to have an annual percentage rate (APR) of around 7.125% (as of publication). Your rate may vary from this based on a number of personal and external factors.
Dacey says that if you work with a mortgage broker, they will be able to shop the lenders for you and seek out your best options if your credit scores are on the lower end of the spectrum.
» MORE: Current mortgage rates
FAQ
Is income verification required for an FHA streamline refinance?
With a non-credit qualifying FHA streamline refinance, the lender won't check your credit, and it’s unlikely that your income will need to be verified. That makes this type of loan easier to qualify for if you already have an FHA home loan and want to take advantage of lower rates or switch up your loan term.
Do you pay closing costs on an FHA streamline refinance?
An FHA streamline refinance will have closing costs. However, some lenders let you close your loan with no out-of-pocket costs in exchange for a higher interest rate.
What credit score do you need for an FHA streamline refinance?
The FHA does not require a credit check for a non-credit qualifying streamline refinance. However, mortgage expert Jay Dacey says some banks have underwriting overlays — i.e., additional requirements of their own — including minimum credit scores. These requirements vary from one lender to another.
Does refinancing hurt your credit?
A non-credit qualifying FHA streamline refinance should not impact your credit since it does not involve a credit check. With a credit qualifying FHA streamline refinance, however, a lender will place a hard inquiry on your credit reports. This can result in a temporary drop in your credit score.
Bottom line
An FHA streamline refinance can help borrowers with existing FHA loans reduce their monthly mortgage payments. Some of the biggest benefits of a streamline refinance are that you usually don’t have to pay for an appraisal, and you get the chance to refinance with a lot less paperwork and documentation than a regular refinance would require. Also, the process can move fairly quickly.
A streamline refinance can also be a good option if your original loan has an adjustable rate and you want to replace it with a fixed rate. Depending on the market, you may be able to lock in a lower interest rate overall.
Just remember that although a streamline refinance may not require much documentation, there are still a few basic requirements you must meet to qualify. There are also associated costs that you’ll either have to pay upfront or as interest later on. If you’re curious about refinancing, make sure you consider all your options and shop around for the lowest rate you can qualify for.
Sources
- U.S. Department of Housing and Urban Development, " Streamline Your FHA Mortgage ." Accessed April 20, 2023.
- Federal Deposit Insurance Corporation, " Streamline Refinance ." Accessed April 21, 2023.
- U.S. Department of Housing and Urban Development, " Section B. Property Ownership Requirements and Restrictions ." Accessed April 21, 2023.
- Freedom Mortgage, " FHA loans for rental properties ." Accessed April 21, 2023.
- U.S. Department of Housing and Urban Development, " Let FHA Loans Help You ." Accessed April 21, 2023.
- U.S. Department of Housing and Urban Development, " Upfront Premium Payments and Refunds ." Accessed April 21, 2023.
- Federal Reserve, " Open Market Operations ." Accessed April 21, 2023.
- U.S. Department of Housing and Urban Development, " Mortgage Insurance Premiums ." Accessed April 21, 2023.
- Consumer Financial Protection Bureau, " What's a credit inquiry? " Accessed April 21, 2023.
