Power Tips

What Is an FHA Streamline Refinance?

Published on: June 7, 2022

fha streamline refinance

An FHA streamline refinance gives borrowers a way to refinance their mortgage with minimal paperwork and qualifications. Because of the limited requirements for FHA refinances, the processing time is shorter compared to traditional refinance loans. And borrowers can refinance their loans even if their credit score has dropped or their home value has decreased.

While FHA streamline refinances provide multiple benefits, they’re not available to all borrowers. Homeowners must have an existing FHA mortgage, be current on the loan, and be able to pay the FHA streamline refinance closing costs.

What is the FHA streamline refinance?

FHA streamline refinance loans are one of multiple refinance options from the Federal Housing Administration (FHA). FHA streamline refinance loans require no home appraisal and less borrower documentation than other refinance loans. Within the FHA streamline refinance program, borrowers can choose between two options: a credit-qualifying and a non-credit-qualifying FHA streamline refinance. 

  • Credit-qualifying FHA streamline refi: Credit check and income verification is required. 
  • Non-credit-qualifying FHA streamline refi: No credit check or income verification is performed. 

The limited documentation requirements make FHA streamline refinances an appealing option for borrowers who want to refinance an FHA loan to take advantage of low interest rates, change their loan term, or switch to a different rate structure. Additionally, these loans are a great option for borrowers who may not qualify for other loan types because of their credit history, home value, or loss of income.

What is a streamline refinance? FHA streamline refinance vs. other FHA refinances

The main goal of FHA streamline refinances is to provide borrowers with a more affordable home loan than they currently have. If you’re deciding whether it makes sense to refinance, it’s important to note the FHA streamline refinance does not provide access to home equity, as is the case with cash-out refinances. As a result, these refi loans limit borrowers from receiving more than $500 in cash back.

Program requirements for FHA refinance loans state the refinance must result in a “net tangible benefit” to the borrower. This means the new mortgage must meet specific guidelines for lowering the borrower’s interest rate or improving other loan terms.

FHA streamline refinance loans are just one of several FHA refinance options. Here’s a look at how they compare to other FHA refi options. 

FHA streamline refinance at a glance 

  FHA streamline refinance   FHA cash-out refinance  FHA rate and term refinance   FHA simple refinance 
Appraisal required  No  Yes  Yes  Yes 
Credit check required   No (only with the FHA streamline refinance no-credit-check option; otherwise, a credit check is performed)  Yes  Yes  Yes 
Can receive cash back  No (can only receive up to $500)  Yes  No (can only receive up to $500)  No (can only receive up to $500) 
Must have an existing FHA loan  Yes  No  No  Yes 

 

FHA streamline refinance: comparing rates and costs

One misconception about FHA streamline refinances is that there is no cost to refinance. Because there is no appraisal or credit check (with the FHA streamline refinance no-credit-check option), FHA streamline refinance closing costs may be several hundred dollars less than other loan types. However, these FHA refi loans do have closing costs.

Some lenders may provide a no-cost FHA streamline refinance. Borrowers who take this option won’t pay for closing costs out of pocket. Instead, they’ll pay higher FHA streamline refinance rates in exchange for the lender covering the closing costs. 

Like all FHA mortgages, FHA streamline refinances carry an upfront mortgage insurance premium of 1.75% of the loan amount and an annual mortgage insurance premium built into the monthly payment. These charges can make an FHA streamline refinance more expensive than conventional refinances and other loan options.

In general, borrowers can expect to pay between 3% and 6% of their loan amount in closing costs when refinancing. Here’s a look at some FHA streamline refinance closing costs you can expect to pay. 

FHA streamline refinance closing costs 

Upfront mortgage insurance premium. This fee offsets the loan’s risk to the lender and is 1.75% of the loan amount in most cases. Borrowers can pay this fee upfront or roll it into the loan amount.  
Origination fee. Lenders usually charge a fee to initiate and underwrite the loan.  
Title search and title insurance. Lenders will require title services to ensure you are the rightful owner of the property. 
Tax service fees. Lenders will make sure there are no tax liens on the property. 
Attorney fees. These fees go to your lawyer or settlement officer. 
Government recording costs. Your state or local government will charge fees to record the documents related to your refinance loan.  

FHA streamline refinance guidelines: Are you eligible?

The requirements for FHA refinance loans are more lenient compared to refinance guidelines for other loan programs, such as conventional (non-government) loans. While FHA streamline refinances are easier to qualify for, borrowers still must meet the program’s guidelines.

In addition to the established requirements for FHA refinances listed below, lenders may set their own qualifications.

Requirements for FHA streamline refinance loans

Current mortgage type 
  • Must be an FHA loan. 
Current mortgage status 
  • Must be current on payments with no more than one 30-day late payment in the past six months. 
Mortgage seasoning  
  • The borrower must have had the existing loan for at least six months from the first payment due date, and 210 days must have passed from the closing.  
Credit score  
  • No credit score requirements with non-credit-qualifying FHA streamline refinance 
  • Credit-qualifying FHA streamline refinances require a minimum credit score of 500. (Some FHA-approved lenders may require a higher minimum credit score.) 
Loan-to-value (LTV) ratio 
  • No LTV ratio requirements. Instead of a home appraisal, the maximum mortgage amount is based on the principal balance of the existing FHA loan. 
Debt-to-income (DTI) ratio 
  • No DTI requirements with non-credit-qualifying FHA streamline refinances. 
  • Credit-qualifying FHA streamline refinances verify income but do not have a maximum DTI cut-off. (Some FHA-approved lenders may impose a maximum DTI ratio.) 

Is an FHA streamline refi right for you? Pros and cons

The FHA streamline refinance program is an attractive option for borrowers who want to refinance quickly and without going through the typical underwriting process. However, FHA streamline refinances have both advantages and disadvantages. Consider carefully whether an FHA streamline refinance is the right loan for you. 

FHA refinance pros and cons (streamline) 

Pros  Cons 
FHA streamline refinances have a shorter processing time than other refinance options.  Borrowers must already have an FHA mortgage. 
FHA streamline refinances do not require an appraisal.  Borrowers must be current on the mortgage. If you’ve had more than one 30-day late payments in the last six months, you won’t qualify. 
Non-credit-qualifying FHA streamline refinances do not require a credit check or income verification.  FHA streamline refinance rates may be higher than other refinance options, such as conventional loans. 
Borrowers can refinance an FHA loan as soon as six months after the first payment due date.  Borrowers who cannot afford FHA streamline refinance closing costs must pay a higher interest rate for the lender to cover them. 
Homeowners may be able to refinance even if they have a loss of income, a low credit score, or their mortgage is underwater.   Borrowers can’t take cash out with an FHA streamline refinance. 
Borrowers receive a refund of upfront mortgage insurance paid on the existing loan if the mortgage is less than three years old.  Borrowers must pay an upfront mortgage insurance premium and ongoing mortgage insurance, making FHA streamline refinances more costly than some conventional loans. 

FHA streamline refinance FAQs

How soon can you refinance an FHA loan? 

With an FHA streamline refinance, borrowers can refinance their existing FHA loan as soon as six months from their first payment due date. Requirements for FHA refinances state at least 210 days must have passed from the closing of the existing loan, and you must have made at least six payments on the mortgage.

Does an FHA streamline refinance remove PMI? 

No, an FHA streamline refinance does not remove mortgage insurance. All FHA loans, including FHA streamline refinances, require mortgage insurance. Borrowers pay an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount and an annual mortgage insurance premium (MIP) that is based on the loan amount, mortgage term, and loan-to-value (LTV) ratio.

Borrowers doing an FHA streamline refinance on a mortgage that closed before May 31, 2009, pay a lower UFMIP and may pay a lower MIP.

Notably, FHA streamline refinance borrowers will receive a prorated refund of the UFMIP they paid on the initial mortgage if they are refinancing within three years of closing on the original loan.

Does the FHA streamline refinance require a credit check? 

The FHA streamline refinance program has two options: a non-credit-qualifying FHA streamline refinance and a credit-qualifying FHA streamline refinance. Borrowers who choose the FHA streamline refinance no-credit-check option do not have to go through a credit check, which means you might be able to get a loan even if you have bad credit.  

Talk to a local Finance of America Mortgage Advisor today to learn more about which refinance options work best for you. 

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