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How an FHA Streamline Refinance Works

How an FHA Streamline Refinance Works

  • Important FHA Streamline Refinance Program Considerations
  • Pros Cons
    • No income, employment or credit score verification required to qualify for FHA Streamline Refinance Program
    • No maximum loan-to-value (LTV) ratio or appraisal report
    • Saves borrower money and time
    • Underwater borrowers eligble
    • No borrower income limits
    • Strict loan eligibility requirements
    • Extra upfront and ongoing cost of FHA mortgage insurance premium (MIP)
    • FHA loan limits
  • FHA Streamline Refinance Program Overview
  • The FHA Streamline Refinance Mortgage Program enables borrowers to refinance an existing FHA mortgage with significantly fewer borrower qualification requirements and less documentation than a standard mortgage refinance.  An FHA Streamline Refinance is designed to make it easier for borrowers to refinance into a more affordable mortgage with a lower monthly payment. The main differences between an FHA Streamline Refinance and a standard mortgage refinance are that the FHA Streamline Program does not require borrowers to verify their employment, income or credit score.

    Additionally, the program does not apply maximum borrower debt-to-income or loan-to-value (LTV) ratios. This means that borrowers are not required to provide their credit report or obtain a property appraisal which makes it much easier to qualify and enables more borrowers to refinance their FHA loans and saves them significant money and time. The program's limited qualification requirements make it well-suited for borrowers who are underwater on their homes and who cannot refinance using standard mortgage programs.

    The ability to refinance your mortgage with no credit score, maximum debt-to-income ratio or loan-to-value (LTV) ratio may sound too good to be true but lenders require that you are current on your loan with no more than one late payment in the prior three months. This is an important FHA Streamline Refinance requirement with the logic being that if you are current on your existing mortgage you will be able to afford your new monthly payment going forward, which should be lower after you refinance.

  • How an FHA Streamline Refinance Works
  • You apply for the FHA Streamline Refinance Program with approved lenders such as banks, mortgage banks, mortgage brokers and credit unions. These approved lenders make sure that applicants meet program eligibility requirements and qualify for the loan according to FHA loan requirements. Even if your current lender offers FHA streamline refinances you are not obligated to work with that lender when you refinance and you should shop your mortgage business to find the best loan terms.

    We recommend that you compare the loan terms including the interest rate and closing costs for an FHA Streamline Refinance to the terms for other refinance programs. Contact lenders in the table below to determine if they offer the FHA Streamline Refinance program and request loan proposals. Comparing lenders and programs is the best way to save money on your FHA mortgage refinance.

  • Current FHA Mortgage Rates as of December 13, 2018
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  • FHA Streamline Refinance Eligibility
  • We review the key FHA Streamline Refinance Program eligibility guidelines below:

    Loan Status

    To qualify for the FHA streamline refinance program borrowers must be current on their mortgage and not delinquent.

    Payment History

    Borrowers cannot have any missed or late mortgage payments within the three months prior to applying for the FHA Streamline Refinance.

    Loan Eligibility

    The mortgage you refinance must be an FHA loan.  If you do not have an FHA mortgage you can still refinance your existing loan with a new FHA mortgage but you cannot use the streamline refinance program.

    Property Occupancy

    Borrowers must currently live in the property being refinanced.

    New Monthly Mortgage Payment and Net Tangible Benefit

    According to FHA Streamline Refinance guidelines, your new loan must provide a "net tangible benefit."  This basically means that your new mortgage must result in a lower monthly mortgage payment than your current FHA loan, unless you are refinancing an adjustable rate mortgage (ARM) into a fixed rate mortgage.  If you are refinancing an ARM into a fixed rate mortgage, your monthly payment may increase moderately as a trade-off for the increased certainty a fixed rate mortgage provides borrowers.

    Mortgage Rate

    The mortgage rate on FHA loans is usually .125% - .500% lower than the interest rate for most conventional mortgage programs because the loans are insured by the U.S. government. With most FHA Streamline Refinances your new interest rate is lower than your existing rate.

    Loan-to-Value (LTV) Ratio

    The FHA streamline refinance program does not apply a maximum loan-to-value (LTV) ratio which makes it ideal for borrowers who are underwater on their homes (mortgage balance is greater than the value of their property).  It is usually impossible to refinance your mortgage if you are underwater on your home.  Because the program does not use a maximum LTV ratio, lender do not require an appraisal report which saves borrowers money and time.

    Mortgage Program

    15 and 30 year fixed rate mortgages and certain adjustable rate mortgages (ARMs) are eligible for the FHA Streamline Refinance Program.  Interest only mortgages are not allowed.

    Mortgage Amount

    Except for including the cost of the upfront FHA mortgage insurance premium (MIP), your mortgage balance cannot increase which means you are required to pay for all other closing costs out of pocket or use a "no cost" mortgage.  For example, if your current mortgage balance is $153,000 then your new FHA loan amount can be no greater than $153,000 plus your upfront MIP fee.  Please note that if you select a "no cost" mortgage, your closing costs are included in the mortgage amount but you pay a higher mortgage rate, which may end up costing you more money over the life of the loan.

    Loan Limits

    Your new FHA loan amount cannot exceed the FHA loan limit for the county in which the property is located.  Loan limits vary by county and by the number of units in the property being financed. In the contiguous United States, the FHA loan limit for a single unit property such as a home or condominium ranges from $294,515 to $679,650 for high cost areas and the limit for a four unit property ranges from $566,425 to $1,307,175.  In Alaska, Hawaii, Guam and the U.S. Virgin Islands loan limits range from $1,019,475 for a single unit property to $1,960,750 for a four unit property.

    Type of Refinance

    The FHA Streamline Refinance Program only permits rate and term refinances which means that the only terms of your loan that can change are your program, mortgage rate and loan length.  In most cases borrowers lower their interest rate but keep their mortgage term the same with their new loan. Cash-out refinances are not allowed through the program although the borrower can take-out $500 in proceeds from the mortgage.

    FHA Mortgage Insurance Premium (MIP)

    FHA Streamline Refinance borrowers are required to pay an upfront and ongoing monthly FHA mortgage insurance premium (MIP).  MIP pays for insurance that protects lenders in the event that borrowers default on their mortgage.  The upfront FHA MIP can be added to your loan amount while the ongoing monthly is an extra cost on top of your mortgage payment. For an FHA Streamline Refinance, the upfront MIP for most loans that closed after May 31, 2009 is 1.75% of the mortgage amount while the upfront MIP for loans that closed before May 31, 2009 is only .01% of the loan amount, so the upfront MIP is significantly discounted for loans that closed before May 31, 2009.

    Borrowers may be able to receive a partial refund of the upfront FHA MIP they paid on their original mortgage if they refinance into a new FHA loan within three years. Any refund is applied to the upfront MIP for their new loan. The upfront MIP refund diminishes over the course of the three years with borrowers eligible to receive an 80% refund if they refinance within one month of closing their original FHA loan and a 10% refund if they refinance in the 36th month after closing.

    For an FHA Streamline Refinance, the ongoing MIP for mortgages that closed before May 31, 2009 is .55% of the loan amount , regardless of mortgage length.  The ongoing MIP for mortgages that closed after May 31, 2009 ranges from .45% to 1.05% of the mortgage amount, depending on the loan amount, loan-to-value (LTV) ratio and mortgage length.  The ongoing MIP is paid monthly by borrowers along with their mortgage payment.

    Prepayment Penalty

    There is no prepayment penalty on FHA loans.

    Our free mortgage quote form enables you to review loan proposals from leading FHA lenders in your area. Our quote feature is personalized, is easy-to-use and does not impact your credit. Comparing loan quotes enables you to find the best FHA Streamline Refinance terms.

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  • FHA Streamline Refinance Requirements
  • As outlined below, FHA Streamline Refinance loans have significantly fewer qualification requirements as compared to a standard mortgage refinance.  The more flexible qualification requirements are designed to help more borrowers participate in the program.

    Borrower Credit Score

    Applicants are not required to submit a credit report or score making the program ideal for borrowers who have experienced a drop in their credit score. Borrowers with lower credit scores may find it challenging to qualify for a mortgage or pay a higher mortgage rate but this does not apply to the FHA Streamline Refinance Program. Please note that although the program does not require borrowers to provide their credit score some lenders may order your credit report to satisfy their internal underwriting guidelines.

    Borrower Debt-to-Income Ratio

    The FHA Streamline Refinance Program does not apply a maximum borrower debt-to-income ratio which helps borrowers who have experienced a decrease in their monthly income or increase in monthly debt expense. Not applying a debt-to-income ratio means more borrowers can refinance their loans.  Please note that although the program does not require a credit report or apply a maximum borrower debt-to-income ratio, most lenders confirm that borrowers have the financial ability to repay their new FHA mortgage. This is typically accomplished by verifying the borrower’s on-time payment history and applying guidelines similar to the Qualified Mortgage (QM) criteria to ensure that borrowers can afford and repay their loan.

    Borrower Income Limit

    Unlike some other mortgage assistance programs, the FHA Streamline Refinance Program does not apply borrower income limits.

    Use the FREEandCLEAR Lender Directory to find top-rated lenders that offer the FHA mortgage program and other refinance assistance options.

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  • Great Mortgage IdeaRelated FREEandCLEAR Resources

  • Sources

    FHA Streamline Refinance Program: https://www.hud.gov/program_offices/housing/sfh/ins/streamline

About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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