FHA Streamline Refinance: Requirements and benefits

Refinancing a mortgage is a common strategy for homeowners looking to lower their monthly payments or to secure a new interest rate or term length. Among the various refinancing options available, the FHA Streamline Refinance program provides numerous benefits for qualified borrowers.

What is an FHA Streamline Refinance?

The FHA Streamline Refinance program is specifically designed to make the refinance process easier and less time-consuming for homeowners with an existing FHA-insured mortgage. It allows borrowers to refinance their current loan to a new FHA loan with minimal documentation and underwriting requirements. Additionally, it eliminates the need for a home appraisal, making it a quicker and potentially more cost-effective option for eligible individuals.

When an FHA Streamline Refinance is a good idea

There are a couple common scenarios where you might find that an FHA Streamline Refinance fits your situation:

1. You want to reduce your monthly payments: One of the primary reasons to choose an FHA Streamline Refinance is to lower your monthly mortgage payments. For instance, if your recent life changes have impacted how you budget for expenses, you might be able to take advantage of this program to refinance your loan and secure a lower interest rate, and subsequently reduce your monthly payment amount.
2. You want to convert from an adjustable rate to a fixed rate: Another example where an FHA Streamline Refinance might work for you is when you want to convert from an adjustable-rate mortgage (ARM) to a stable fixed-rate mortgage. If interest rates are currently low, this refinance option may enable you to lock in a fixed rate on the remainder of your mortgage balances, providing long-term stability and potentially saving you money in the future.

If you don’t have an FHA-insured mortgage but want to refinance at a better rate, there are other options. For example, VA loans have a refinancing program, and there are also conventional refinance options. Check with your mortgage lender to see which of these might work for you.

Benefits of a FHA Streamline Refinance

As its name implies, refinancing with an FHA Streamline is easier but otherwise similar to ordinary mortgages. The FHA Streamline has five main advantages:

1. No appraisal is required: The FHA allows you to use your original purchase price to represent your home’s current value. Not only does this save you the cost and hassle of getting an appraisal and worrying about whether it will be high enough, it also allows eligibility even if your loan is currently under water (i.e. your loan payoff amount is higher than your home’s market value). You have the option, however, to use a current appraised value.
2. No verification of income or employment is required: Being currently unemployed or underemployed will not prevent you from refinancing with an FHA Streamline. Credit score verification is also waived, although many lenders add on a minimum credit score requirement of approximately 660.
3. The process is easier and faster: The FHA Streamline refinance loan requires significantly less documentation. Coupled with the elimination of the appraisal, the turnaround time can sometimes be as quick as two to three weeks. If you have been postponing refinancing expecting there might be significant hassle involved, the FHA Streamline is an appealing solution.
4. Rates are the same as on regular FHA mortgages: Despite the benefits and lower credit requirement, the FHA Streamline mortgages offer rates as low as other FHA mortgage loans.
5. There is no prepayment penalty: It’s good to know that you have the option of paying off your mortgage early without incurring any additional charges.

Even if you think you can’t refinance because you may move in a year or two, think again! With the benefits of an FHA Streamline—no appraisal, far less documentation, and quick turnaround time combined with today’s low mortgage rates—you might break even in just a few months.

Requirements for an FHA Streamline Refinance

To be eligible for an FHA Streamline Refinance, you must meet certain criteria:

1. Existing FHA loan: You must have an existing FHA-insured mortgage to qualify for this program.
2. On-time mortgage payments: You should have a good payment history with no late payments in the past 12 months.
3. Net tangible benefit: You can choose this option only if it provides a tangible benefit to you such as a reduced interest rate, lower monthly payments, or switching from an ARM to a fixed-rate mortgage.
4. No cash out refinancing: Unlike some other refinancing options, an FHA Streamline Refinance does not allow cash out refinancing. Only the outstanding principal balance, closing costs, and upfront mortgage insurance premium can be included in the new amount.
5. Credit qualifications: The FHA Streamline Refinance program generally has more flexible credit requirements compared to traditional refinancing options, and you may be eligible even if you have a low credit score.

As with any mortgage, talk with your current lender, shop around to compare options, and work only with trustworthy, highly-rated, reputable lenders.