What is an FHA Streamline Refinance?
An FHA streamline is a refinance loan for those who already have an FHA loan. It’s a refinance that allows you to refinance from one FHA loan to a new one, usually with a lower rate.
Streamline refinances are quicker than standard refinances because there is reduced documentation and a “streamlined” process.
An FHA Streamline refinance doesn’t require:
- Income documentation
- Credit Report
- Appraisal
How Does an FHA Streamline Work?
The FHA streamline refinance allows you to refinance your loan into a 30-year mortgage or a 15-year mortgage. The main requirement is that you must reduce your monthly payment and/or interest rate.
There are two types of FHA streamline refinances:
Credit Qualifying Refinance:
A credit qualifying refinance is the same as any other streamline refinance but provides the lender with a level of assurance that the borrower is still meeting their credit obligations.
On credit qualifying streamline refinances the lender must provide evidence that the borrowers have an acceptable credit history and ability to make payments.
In order to document this the lender must:
- Verify the borrower’s income and credit report
- Calculate their debt-to-income ratios
- Determine that the borrower will continue making mortgage payments
There are certain scenarios when the borrower must use or consider a credit qualifying refinance.
- If a change in the mortgage term will increase the mortgage payment by more than 20%
- If you are removing an original borrower and it will trigger the due-on-sale clause
Another reason why some borrowers may choose to do a credit qualifying streamline is that better rates could be available.
Non-Credit Qualifying Refinance:
A non-credit qualifying refinance is one in which the borrower does not have to provide a credit report or income documentation. There is no debt-to-income calculation or verification of their income.
Non-credit qualifying refinance is usually the faster of the two given the reduced documentation required.
What documents are required for an FHA Streamline Refinance?
The streamline refinance is considered a “low doc” loan program which means you’ll be required to provide fewer documents in order to qualify.
The documents required on an FHA streamline refinance are:
- A complete loan application
- A current mortgage statement with on-time payments
- Employment contact information
- Most Recent 60 days of asset statements for closing funds
- Proof the home is your primary residence
Should you need to use the credit qualifying streamline refinance you’ll also need to provide:
- Credit Report Authorization
- 30 days of paystubs
- Last 2 Years W2’s
What terms are available on a Streamline Refinance?
FHA Streamline refinance allows you to refinance for a 30-year or 15-year term. The important thing to note is that you cannot go from a 30-year to a 15-year but you can go from a 15-year to a 30-year.
While stretching out your monthly payments will reduce your monthly obligations, it will also drastically increase the amount of interest you pay. So you should only add time to your mortgage if it’s absolutely necessary.
FHA Streamline Refinance Pro’s
If you’re considering refinancing your current FHA mortgage using the streamline refinance you should consider the pros and cons of doing so.
FHA Streamline Pros:
- Easy to qualify for
- Ability to lower your interest rate
- No appraisal is required
It’s important to note that there are a few drawbacks to the streamline refinance as well.
Con’s of the FHA Streamline Refinance
- No cash-back allowed
- You can’t reduce your loan term
- The original loan amount can’t be exceeded
- Closing costs can’t be rolled in
- Monthly Mortgage Insurance stays on the loan
What are the FHA Streamline Refinance requirements?
First, you must have an existing FHA loan in order to qualify for the streamline refinance, but that isn’t the only requirement.
3 Month On-Time Payment History
If you want to qualify for a streamline refinance you must have made your last 3 months of payments on time. This means you cannot have any 30,60 or 90 day late payments on your mortgage. You are also only allowed to have 1 late payment in the last 12 months.
Current Loan Must Be Older Than 210 Days
Mortgage Churning is a major issue in the mortgage industry. Churning is when a lender or lenders, frequently refinance their clients. They promise lower rates and reduced payments but the issue with refinancing often is that it takes all of the homeowner’s equity.
To combat mortgage churning FHA requires you to have made at least 6 months’ payments since you either purchased the home or refinanced it. 210 days must have passed since your last closing date.
But 210 days isn’t six months…
I promise we don’t suck at math, when you close on your home you usually have between 30-60 days before your first payment is due. As a result, you likely won’t have made your 6th payment until 210 days have passed or more from your last closing.
A Clear Benefit for Refinancing
FHA says that a Streamline Refinance must have a “net tangible benefit” A net tangible benefit is a fancy way of saying there must be a monetary benefit to you, the homeowner.
In order to meet the Net Tangible Benefit, you must reduce your combined rate by 0.5%. This means if you have a current FHA loan at 4.5% then you would need to reduce the interest rate to at least 4.0% in order to qualify.
Another way to qualify is if you have an adjustable-rate mortgage and you are refinancing into a fixed-rate mortgage. Fixed-rate mortgages are considered more stable because the payment will remain the same for the life of the loan.
FHA Streamline vs. Conventional Refinance
How does an FHA streamline refinance compare to a conventional refinance?
Conventional Refinance
A conventional refinance requires:
- Credit Report
- Income Documentation
- Bank Statements
- W2’s
- Appraisal
Since a conventional refinance is just a standard refinance all of the documents that any other mortgage loan requires will be needed. This means the process will take longer, and qualifying won’t be as easier as a Streamline Refinance.
However, with a Conventional refinance you can:
- Take cash out
- Roll in your closing costs
- Get rid of PMI (if you have 20% equity)
- Get lower interest rates
- Reduce your mortgage term (25,20,15 or 10 years)
So while it might be a little more difficult to refinance using a conventional loan, there are some notable benefits.
Who Should Use an FHA Streamline Refinance?
If you currently have an FHA loan and you are considering refinancing, you might want to consider using a streamline refinance.
A Streamline Refinance is great if:
- Rates are currently lower than they were when you purchase your home (at least .5% lower)
- If you had poor credit when you purchase the home and now your credit has improved
- If you are “upside-down” on your current home, rates are lower now, and you want to reduce your payment
- If you want to take advantage of lower interest rates but you don’t qualify for a conventional loan either due to your credit, income situation or if you still owe too much on your house.
Overall the benefits of using an FHA streamline refinance come down to:
- No verification of your employment and income
- No credit score used to qualify
- No appraisal is required
If these describe your situation you should consider whether or not an FHA Streamline Refinance is right for you.
FHA Streamline Refinance FAQ’s
What is an FHA Streamline Refinance?
The FHA Streamline Refinance is a refinance program for current FHA-insured borrowers. A Streamline refinance is a quicker faster option for refinancing.
How Does The FHA Streamline Refinance Work?
The FHA Streamline Refinance allows you to refinance your current mortgage on a 30-year or 15-year loan. You can take advantage of lower interest rates without needing to order a new appraisal.
Does an FHA Streamline Refinance get rid of PMI?
Streamline Refinances do not get rid of PMI. The reason for this is because on all FHA Loans the Mortgage Insurance Premium is permanent lasting for the life of the loan. The only way to get rid of PMI on an FHA loan is to refinance to a different type of loan, such as conventional.
Who can use an FHA streamline refinance?
Current FHA-insured borrowers who have made their last 3 payments on time, and no more than one late payment in the last 12 months on their mortgage.
Does an FHA Streamline Refinance require a credit check?
If you are using a non-credit qualifying FHA Streamline refinance, a credit check is not required. However, on a credit-qualifying FHA refinance it is.
Can you take cash out with an FHA streamline refinance?
You cannot take out any cash with a Streamline Refinance. You can do an FHA Cash-Out or Standard Cash-Out refinance and use your home’s equity to take out cash.
How long does an FHA Streamline Refinance take?
FHA Streamline refinance loans don’t require an appraisal which is part of the loan process that can take the longest. Since there is no appraisal required you can close a Streamline very quickly. 2-3 weeks at most.
