If you have an FHA loan and interest rates have dropped since you bought your home, you might be hesitant to go through the entire mortgage application process again. The FHA Streamline Refinance provides a solution, offering an accelerated path to lowering your mortgage payment.
Key Requirements and Borrower Eligibility
To qualify, you must meet a few straightforward criteria set by the FHA:
- Existing FHA Mortgage: This program is exclusively for homeowners whose mortgages are already insured by the FHA. It cannot be used for conventional, VA, or USDA loans.
- On-Time Payment History: Lenders need to see a consistent record of timely payments. Generally, you must have made at least six on-time payments on your current FHA loan.
- Waiting Period: A borrower must typically wait at least 210 days from their original loan’s closing date before applying for a Streamline Refinance.
- Net Tangible Benefit (NTB): The refinance must provide a clear financial advantage to you. According to the Department of Housing and Urban Development (HUD), this requirement is met if the new loan lowers your combined principal, interest, and mortgage insurance payment. Many lenders look for a reduction of at least 5% to approve the loan.
The “Streamline” Advantage: Less Paperwork
The FHA already insured your original loan, which means it has already assessed the risk associated with you and the property. The Streamline program leverages this by reducing documentation requirements.
- No New Appraisal: In most cases, the FHA allows the lender to use the original appraisal value from your first FHA loan. This saves you hundreds of dollars in appraisal fees and eliminates the risk of a low appraisal value preventing the refinance.
- Limited Income Verification: While lenders will review your credit, the FHA’s guidelines for a “non-credit qualifying” streamline do not require income or employment verification. However, most lenders today use their own “credit qualifying” standards, where they review your credit score and debt-to-income ratio, though the requirements are often less strict than for a new mortgage.
Because the program’s goal is to lower your payment, it is not designed for taking equity out of your home. A cash-out refinance is a different product. The maximum cash you can receive back at closing is limited to $500 to cover minor cost adjustments.
FHA Streamline vs. Traditional Refinance
Here’s a quick comparison of how this program differs from a standard mortgage refinance:
| Feature | FHA Streamline Refinance | Traditional Refinance |
|---|---|---|
| Appraisal Required? | Usually no | Almost always yes |
| Income Verification? | Often not required by FHA | Yes |
| Cash-Out Allowed? | No (or limited to $500) | Yes (with a cash-out refinance) |
| Purpose | Lower rate/payment on an existing FHA loan | Lower rate/payment, switch loan types, or get cash out |
Understanding the Costs and Mortgage Insurance
An FHA Streamline Refinance is not free; you will have closing costs, such as lender and title fees. You can pay these out-of-pocket or, if the lender offers it, roll them into the new loan balance. This is often called a “no-cost” refinance, but it increases your total loan amount.
You will also continue to pay the FHA’s Mortgage Insurance Premium (MIP). However, homeowners whose original FHA loan was endorsed on or before May 31, 2009, may qualify for a lower annual MIP rate, offering additional savings. For more information, you can visit the official HUD Streamline page.
Is an FHA Streamline Refinance Right for You?
This program can be an excellent financial tool if:
- Your current FHA loan interest rate is higher than today’s market rates.
- You want a faster, simpler refinancing process with less paperwork.
- You do not need to take cash out of your home’s equity.
- You have a strong payment history and plan to stay in your home long enough for the savings to outweigh the closing costs.
You are not required to use your current lender. It is wise to contact multiple FHA-approved lenders to compare rates and fees to ensure you get the best possible deal.