How to Refinance an FHA Loan Using Streamline Financing

Borrower streamline refinancing with lender

What is an FHA streamline refinance?

It is a unique program for homeowners who have a Federal Housing Administration (FHA) loan and want to refinance. An FHA streamline refinance program is easier than a traditional refinance because borrowers aren’t required to verify income and assets. An appraisal is not required either — saving you even more time and money. Hence the “streamline” in streamline refinance.

Arguably, one of the biggest perks of this program is that it allows for an unlimited loan-to-value ratio. What does this mean for borrowers? It means that you can still take advantage of an FHA streamline refinance even if you’re upside down on your mortgage.

It is a fast and cost-effective way to refinance that comes with flexible documentation and credit standards. Learn how FHA streamline refinancing works for many homeowners to better their financial future.

Streamline refinancing requirements

  • Have an FHA home loan to refinance with an FHA-approved lender

  • Currently, live in the home you are refinancing

  • Can’t have made more than two, 30-day late mortgage payments in the past 12 months

  • Have not completed an FHA streamline refinance in the past six months

  • No minimum credit score required for an FHA streamline refinance (lender may require)*

What are the benefits?

  • No appraisal required

  • No income verification

  • No loan-to-value limits

  • No minimum credit scores

The benefits boil down to a quick and easy refinancing process for borrowers. The eligibility requirements are relatively straightforward. And you save money in fees that you would have to pay with a traditional refinance.

How does an FHA streamline refinance work?

There are two types of FHA streamline refinance, non-credit qualifying and credit qualifying. There are some differences in what the FHA requires for each type of refinance.

Non-credit qualifying refinancing

Don't assume that you'll be able to move forward with an FHA streamline refinance without a credit check. This is available only to homeowners who have owned their home for at least six months, and the refinance must take place at least 210 days after the closing date of the original home loan. Borrowers who are concerned about their credit might want to hold off on a streamline refinance until they improve their scores

Credit qualifying refinancing

Requires the lender to provide evidence that the borrowers have an acceptable credit history and the ability to keep up with mortgage payments. This is common for situations in which there’s a change in mortgage terms that results in a payment increase.

To make streamline refinancing possible for homeowners, the FHA does not require an appraisal. The homeowner’s initial purchase price is used instead. It also doesn’t require a credit report being pulled for non-credit qualifying streamline refinances.

However, a credit report is required for credit qualifying streamline refinances. Regardless, the mortgage lender might ask for a credit report as a part of its own policy too. The program does not ask for bank or asset statements and doesn’t require home appraisals.

Are there closing costs?

As with most loan types, yes, there are closing costs involved. The FHA doesn’t allow borrowers to roll closing costs into the new FHA streamline refinance. So closing costs are required to be paid upfront basically or financed separately.

You could try to get a “no-cost” FHA streamline refinance instead to avoid out-of-pocket expenses. Lenders who offer “no-cost” refinances charge a higher rate of interest on the new loan than if the borrower financed or paid the closing costs upfront. In return, the lender pays any closing costs incurred during the refinancing.

Trust us, you don't want to limit your search to no cost FHA streamline refinance lenders. 

Can you take cash out?

Unfortunately, there is no cash-out option with an FHA streamline refinance.

When does it make sense?

Is an FHA streamline refinance a good idea? Basically, it depends if you're getting a lower interest rate or reducing your mortgage term.

Getting a lower rate

If interest rates get low, people tend to refinance to get into a better rate and lower their monthly mortgage payment. If interest rates are on the rise, then it’s probably best to wait in till they drop again.  

Shortening mortgage term

Another strong case for streamline refinancing is to reduce the length of your mortgage. There are some conditions to get the most out of this particular benefit.

  • You decrease how long it will take you to repay your mortgage

  • The new interest rate will be lower than your current one

  • The new mortgage payment doesn’t exceed the refinanced mortgage by more than $50

To put it simply, you can use this loan to shorten your mortgage term as long as your interest rate doesn’t go up, and your total monthly payment doesn’t go up by more than $50. Use our FHA streamline refinance calculator to see if it's worth considering.

Not all borrowers will benefit from such a loan. As is the case with other mortgage programs, you will come across a number of FHA streamline refinance pros and cons as you do your research.

Lowering MIP or PMI

There's no question that private mortgage insurance (PMI) or mortgage insurance premiums (MIP) can add up quickly. Thankfully, an FHA streamline refinance allows you to lower this rate and save more of your money. You must have received your loan prior to May 31, 2009 in order to be eligible.  

FHA streamline refinance lenders  

Ideally, an FHA streamline refinance loan can lower your monthly mortgage payment and save you thousands in interest over the life of your loan. But this isn’t always the case. To be certain, make sure to speak with an FHA-approved lender like American Financing.

*FHA loan requirements are subject to change. As a result of COVID-19, mortgage investors are unable to support as many loans, meaning underwriting guidelines for government loans are becoming more strict.

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