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Allison Martin is a contributor to Bankrate covering personal finance, including mortgages, auto loans and small business loans. Martin’s work began over 10 years ago as a digital content strategist, and she’s since been published in several leading outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews, Investopedia, Experian and Credit.com. Martin, a Certified Financial Education Instructor (CFE), also shares her passion for financial literacy and entrepreneurship with others through interactive workshops and programs.
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The FHA streamline refinance program makes it quicker and cheaper for borrowers who have a Federal Housing Administration-insured mortgage to refinance their loans at lower rates. FHA streamline refinances are typically easier to get than traditional refinances, so those undergoing some form of hardship might want to consider one. But they do have some important limitations, too.
Here’s what to know about getting an FHA streamline refi.
An FHA streamline refinance is a type of refinance loan available to FHA loan borrowers. As with any refinance, it involves taking out a new mortgage that you use to pay off your current one. It’s called a streamline refinance because the process of applying for the loan is much simpler than that of a standard refinance. It typically doesn’t require a home appraisal, for example.
The FHA streamline program is divided into non-credit qualifying and credit-qualifying refinances. Both types are designed to lower the monthly principal and interest payments on a mortgage insured by the FHA.
Credit-qualifying streamline refinances require the lender to verify your income, check your credit and confirm your debt-to-income ratio. The FHA requires lenders to consider doing a credit-qualifying streamline in certain cases, including when the refinance would reduce the mortgage payment by more than 20 percent.
Those verification requirements don’t apply to non-credit qualifying refinances; the lender can help you refinance without meeting them. However, though the FHA doesn’t require a credit check, the lender you work with might still pull your credit report.
The FHA streamline program allows you to refinance even if you have an underwater mortgage — that is, you owe more on the home than it’s currently worth.
The FHA streamline refinance program has more relaxed lending guidelines than traditional refinances when it comes to an appraisal, credit check and income verification. Yet it still imposes a number of eligibility requirements. The requirements can vary by lender, but here are the minimum standards.
This is the primary rule. In order to take advantage of the FHA streamline program, you must already have an FHA-insured mortgage.
It’s only possible to do an FHA streamline refinance if it results in what the FHA calls a “net tangible benefit” for the borrower. These net tangible benefits include:
ARM streamline refinances have other specific requirements, as well. If you’d like to streamline refinance a one-year ARM to a fixed-rate loan, for example, the new interest rate can’t be more than two percentage points higher than the current ARM rate. The inverse is also true: If you’re refinancing a fixed-rate loan to a one-year ARM, the new rate must be at least two percentage points lower than the fixed rate.
You can’t apply for a streamline refinance immediately after closing your FHA loan. You’ll need to wait until:
If your FHA loan is less than a year old, you’ll need to have made all of your monthly payments on time. If you’ve had your mortgage for more than a year, you’re allowed one 30-day late payment in the past 6 months — but, you must have made all mortgage payments on time for the three months prior to applying for the refinance.
Like all FHA loans, you’ll pay mortgage insurance premiums (MIP) on an FHA streamline refinance. This means another upfront MIP, plus annual MIPs, at the following rates:
Depending on when you got your initial FHA loan, you might be able to get a portion of the upfront MIP refunded when you refinance. The longer it’s been, the lower the refund. This refund could help you pay the MIP on the new loan.
FHA refinance rates are usually competitive with the refinance rates for other types of loans. You can use a mortgage refinance calculator to see how lowering your rate or shortening or lengthening your loan term would impact your mortgage payment and total interest.
General refinance rates tend to be slightly higher than FHA refi rates. As of Aug. 30, a 30-year FHA loan is costing 6.27 percent, vs. 6.35 percent for a conventional 30-year mortgage.
All new forms of debt appear on your credit report, including new mortgages. If you apply for a credit-qualifying FHA streamline refinance, the lender will do a hard credit pull that could lower your credit score for a short period.
You can do an FHA streamline refinance more than once, provided you meet the program’s guidelines to qualify for a new loan each time. This includes the waiting period and net tangible benefit rules.
Additional reporting by Mia Taylor
Mitch Strohm is a regular contributor for Bankrate. Based out of Nashville, Tennessee, he has been reporting on the finance space for more than 12 years. Since 2010, Mitch has written and edited articles for Bankrate on topics including mortgages, banking, credit cards, loans, home equity and personal finance. His work has also been seen on sites including Business Insider, Clark Howard, Yahoo Finance, Fox Business, Interest.com and Bankaholic.com.
Arrow Right Contributor, Personal Finance
Allison Martin is a contributor to Bankrate covering personal finance, including mortgages, auto loans and small business loans. Martin’s work began over 10 years ago as a digital content strategist, and she’s since been published in several leading outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews, Investopedia, Experian and Credit.com. Martin, a Certified Financial Education Instructor (CFE), also shares her passion for financial literacy and entrepreneurship with others through interactive workshops and programs.
