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FHA Streamline Refinance Program: What You Need to Know

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Taking advantage of lower interest rates on your FHA home loan is an attractive option to many. The FHA streamline refinance program makes it easy for homeowners to do so. We’ll cover the basics of the FHA streamline refinance program and go over common questions that borrowers may have.

FHA Streamline Refinance Requirements

Here are the basic requirements to qualify for an FHA streamline refinance:

  • Your mortgage must already be FHA-insured

  • You must be current on your mortgage payments

  • The refinance must offer you a net tangible benefit

  • 210 days or more must have passed on the closing date of your original mortgage

  • Six full months must have passed since the first mortgage payment due date

  • You must have made at least six on-time payments on the FHA mortgage, although some exceptions can be made to this rule for credit-qualifying streamline refinances

In short, if you've had an FHA mortgage for at least six months and have made six on-time, consecutive payments, you'll likely qualify for an FHA streamline refinance. The new loan must also provide what's called a net tangible benefit.

Net Tangible Benefit

There are a few different ways to meet the FHA’s net tangible benefit requirement. The purpose is to help ensure the refinance provides genuine financial benefit for the homeowner.

Broadly, homeowners can clear this hurdle if there’s:

  • A reduced combined rate (both the note rate and the Mortgage Insurance Premium)

  • A change from an adjustable-rate mortgage to a fixed-rate loan

  • A reduction in mortgage term of three years or more

Requirements can vary depending on the nature of your current mortgage, what kind of loan you want to refinance into, and more. An FHA lender can help walk you through the net tangible benefit test and let you know your options.

Do FHA Streamline Refinances Require Credit Checks?

When it comes to the FHA streamline refinance, there are two different ways you might be able to qualify. You can either obtain a credit-qualifying or non-credit qualifying FHA streamline refinance.

Credit-qualifying conditions

Under credit-qualifying conditions, you may be required to verify your income and credit. Lenders will check your debt-to-income ratio to make sure that you can afford the new mortgage payments, and can pay them on time. You'll likely undergo credit-qualifying conditions in certain situations such as:

  • A change to the mortgage term that causes the payment amount to increase by more than 20%

  • Removal of a borrower from the mortgage, triggering the due-on-sale clause

  • Owning the property for less than six months

Non-credit qualifying conditions

Non-credit qualifying conditions is just what it sounds like. There is no need to verify your credit report or income. In most cases, borrowers will fall under the non-credit qualifying category. So while some borrowers will need to verify their income and credit, most will conveniently get to skip this step, further expediting the process.

FHA Streamline Refinance Pros and Cons

While an FHA streamline refinance can be helpful in some situations, it won't be the right fit for everyone. Here's a look at some pros and cons you should know:

Pros of an FHA Streamline Refinance

An FHA streamline refinance can offer the following advantages:

  • Save money: You could potentially reduce monthly payments on your mortgage by taking advantage of a lower or fixed interest rate.

  • No appraisal: The FHA doesn't require an appraisal on the FHA property being refinanced, which can save you time and money.

  • No required repairs: If a property is appraised, the FHA doesn't require borrowers to make any repairs except for those involving lead-based paint.

  • No verification of employment or income: The FHA doesn't require lenders to certify your income or employment under non-credit qualifying conditions.

  • No credit guideline: Under non-credit qualifying conditions, lenders might not check your credit or have a minimum qualifying score.

Cons of an FHA Streamline Refinance

On the flip side, there are some disadvantages you may face with an FHA streamline refinance, including:

  • Credit-qualifying requires verification: Credit-qualifying cases will require verification of your income, meaning examination of your credit report.

  • Little to no cash out: FHA streamline refinances do not allow you to cash out more than $500 of your equity.

  • Lenders may have strict rules: While the FHA has lenient rules, lenders can set additional requirements which may be more strict.

  • New Upfront Mortgage Insurance Premium (UFMIP): When you refinance, you'll be required to pay a new UFMIP payment of 1.75% of the loan amount. However, you may qualify for a partial MIP refund.

  • Separate closing costs: The refinance will come with closing costs ranging from 3% to 6% of the loan amount.

  • No second homes: The program isn't available for vacation homes or investment properties, in most cases.

While the FHA streamline refinance can offer various benefits, there are some costs to consider. It's important to figure out your total savings and total costs before moving forward. Be sure to factor in the closing costs and UFMIP.

FHA Streamline Refinance Rates

Like all other mortgage interest rates, FHA streamline refinance rates will change daily based on market conditions. They will also vary from one lender to the next. You can shop around online by checking the rates on different lender websites. If you see a rate that would offer you a net tangible benefit and you meet the other requirements, you may want to consider the FHA streamline refinance.

Common Questions About the FHA Streamline Refinance

Find answers to some of the most frequently asked questions about the FHA streamline refinance program.

How does an FHA Streamline Refinance work?

When using the FHA streamline refinance, you get a new FHA-insured loan from an FHA-approved lender. The new loan is used to pay off your existing loan. Then, you move forward making payments on the new loan. You will be subject to current market rates.

Do I have to pay closing costs on an FHA Streamline Refinance?

Yes, an FHA streamline refinance comes with closing costs. However, some lenders offer no-cost refinances in which they charge you a higher interest rate to offset those closing fees.

What is the minimum credit score for FHA Streamline Refinance?

If you qualify for a non-credit qualifying FHA streamline refinance, the FHA doesn't require a credit report so you won't need a specific score.

If you are required to get a credit-qualifying streamline refinance, the FHA doesn't insure mortgages if your credit score is under 500. However, it’s important to note that many lenders will expect a higher score.

Can I refinance with an FHA Streamline Refinance more than once?

The FHA streamline refinance program is not limited to one use. You can use it multiple times but will need to meet the eligibility requirements each time. For example, 210 days must have passed from the date that your last mortgage closed and you must have made at least six, consecutive on-time mortgage payments.

Is an appraisal required on an FHA Streamline Refinance?

Appraisals are not required for an FHA streamline refinance.

An FHA streamline refinance can help you obtain financing on your home that could lower your monthly payments. For more information on the FHA Streamline refinance, talk to your lender.

Written by:
Justin Buford
Loan Coordinator

Justin came to Paddio with a decade of experience in the mortgage and lending industry, developing a vast knowledge of multiple loan types, including but not limited to Conventional and FHA loans.

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