FHA Streamline Refinance loans help current FHA homeowners lower the monthly payments for their existing FHA mortgages.
With this refinance option, homeowners can get approved with no home appraisal and no credit check. This speeds up the approval process and lowers closing costs.
But these loans still require refinance closing costs, and paying them can be a big hurdle for homeowners.
FHA doesn’t allow closing costs to be added to a new refinance loan
Many mortgage loans — like a conventional refinance — allow borrowers to finance closing costs into the new mortgage refinance loan to reduce out-of-pocket expenses.
Because the FHA Streamline Refi requires no home appraisal, the rules for loans backed by the Federal Housing Administration are a little different. Instead of basing the loan’s size on the loan-to-value ratio, the FHA streamline refinance bases its loan size on the home’s current FHA loan size.
Specifically, the lender subtracts the FHA MIP refund from the current unpaid principal balance, then adds on the new upfront MIP costs.
(Current unpaid principal balance) – (FHA MIP refund) + (New upfront MIP cost) = New maximum loan amount
FHA streamline refinance maximum loan calculation
For example, assuming a current FHA loan closed 12 months ago with a current loan balance of $150,000, the new loan amount would be as follows:
- Current balance: $150,000
- Upfront MIP refund due to borrower: $1,522
- New upfront MIP due: $2,625
- Max new loan amount: $151,103
The new maximum loan amount does not leave room for financing in closing costs. For an FHA Streamline Refinance, typical closing costs range between $1,500 and $4,000. Though, closing costs can vary widely depending on the lender, borrower characteristics, and the loan amount.
The good news is that you don’t always have to pay these closing costs out of pocket.
Lender-paid closing costs on an FHA Streamline Refinance
Streamline loans are in high demand with lenders — overall, they take less time and fewer resources to process compared to other loan types. Lenders also don’t have to order a home appraisal. This minimizes the risk of wasted time and energy if the home’s value does not appraise for the expected amount.
Lenders also don’t have to do income verification for the new loan. They don’t have to calculate your debt-to-income ratio. If you’ve been paying your monthly mortgage payment, lenders assume you’ll continue to do so when you have a lower monthly payment.
These factors add up to lenders wanting a lot of FHA Streamline Refinance business, and that’s good news for consumers. By getting multiple quotes from multiple lenders, banks and mortgage companies have to compete. This gives FHA Streamline Refinance applicants the leverage to reduce their out-of-pocket expenses.
For example, an FHA applicant gets two FHA streamline quotes at 7%. One lender quotes $3,000 due at closing; the other lender quotes $2,000. The borrower can, and should, negotiate using lower closing costs with the higher-priced lender.
By trying this method, many borrowers can drastically reduce or even eliminate their out-of-pocket costs without increasing their interest rate by rolling closing costs into the loan.
Service release premiums give lenders the power to negotiate
Ever wonder how lenders are able to waive thousands of dollars in fees?
Lenders enjoy what’s called a service release premium (SRP). It’s a fee not disclosed on the Loan Estimate or other loan documents. Lenders collect the SRP when they sell a closed loan to a loan aggregator like Fannie Mae or Freddie Mac.
For FHA lenders, the aggregator is Government National Mortgage Association, or GNMA, which is owned by the U.S. government. (GNMA pools together loans and sells them off as securities to investors, who enjoy collecting the interest the borrower pays over the life of the loan.)
The SRPs that the lenders collect from these aggregators can add up to thousands of dollars. This money could be applied to pay for all or part of the borrower’s closing costs. The closing costs still exist, but the borrower isn’t required to pay them or is reimbursed any cost paid upfront.
FHA Streamline Refinance applicants have the power to lower their FHA closing costs by negotiating with the lender to pay them. It never hurts to ask.
FHA Streamline Refinance Closing Costs
Most homebuyers and refinancers know how to compare interest rates between different lenders, but many loan shoppers don’t think as much about closing costs and fees.
Closing costs can vary a lot by lender, too. Some charges are set in stone, but others aren’t. For example, loan origination fees can vary from 0% to 1% of the loan amount. If you’re refinancing a $200,000 loan, 1% would add $2,000 in closing costs; 0.5% would add only $1,000.
What’s the easiest way to compare closing fees? Get Loan Estimates from at least two lenders. All FHA lenders’ Loan Estimates should appear on a standardized form, making these charges easy to compare.
Are there closing costs with an FHA Streamline Refinance?
FHA Streamline Refinance loans are faster, easier — and less expensive — than most refinance loans. But they still require closing costs.
Any type of refinance will incur closing fees. Even when the lender advertises no closing costs, the costs still exist, and most often, they’re still being paid by the borrower in the long run — unless you negotiate, specifically, for your FHA lender to lower its fees.
Even when you pay closing costs, the benefits can still outweigh the costs if your new loan saves money every month.
Typical closing costs with an FHA Streamline Refinance
In addition to the fees listed below, qualifying borrowers are also required to prepay some expenses like taxes and homeowners insurance. The borrower’s current lender typically sends a refund of a similar amount when the loan closes. This means the net cost for borrowers is often close to zero for prepaid items.
|Loan origination fee
|0-1% of the loan amount
|FHA upfront mortgage insurance premium (MIP)
|1.75% of the loan amount (less MIP refund)
|FHA mortgage insurance refund
|10-68% of original FHA UFMIP (see chart)
|$0 (not required)
*This is a list of possible fees for an FHA streamline refinance. While not an all-inclusive list, it should give you an idea of general closing costs.
Your loan could require higher or lower fees depending on the lender, the loan amount, and your credit score among other loan factors. The only way to get an accurate estimate is to get a Loan Estimate from a lender to see their quoted costs. Once you get this estimate from at least two lenders, then you can start to negotiate your fees.
While these costs may seem large, keep in mind the amount of money the lender collects in SRP at closing — this gives the borrower the power to negotiate.
Can you refinance from an FHA loan to a conventional loan?
If you have an FHA loan, it’s possible to refinance to a conventional loan once you have 5% equity in your home.
If you meet the home equity eligibility requirements, refinancing to a conventional loan can give you the benefit of lower interest rates and allow you to get rid of your private mortgage insurance (if you have at least 20% equity in your home).
But just because it’s possible to refinance from an FHA loan to a conventional loan, it might not make financial sense for your situation. You’ll need to consider the net tangible benefit for your personal finances. Plus, this will require you to provide asset verification and you will probably need to pay for a new home appraisal.
Meanwhile, an FHA Streamline Refinance can help you quickly drop the monthly payment on your existing FHA loan and without so much documentation or an appraisal.
Who can use an FHA Streamline Refinance?
The FHA Streamline Refinance program works only for current FHA loan holders. And, it won’t work for every FHA homeowner.
To use this refinance option, a homeowner must be able to benefit from it. Benefits include getting a lower monthly mortgage payment or changing from an adjustable-rate mortgage to a fixed-rate mortgage.
And, of course, the homeowner must be living in the home as a primary residence. The Department of Housing and Urban Development (HUD) requires this of all FHA borrowers.
Two types of FHA Streamline Refinance loans
The FHA offers two different types of Streamline Refinance loans:
- Non-credit Qualifying Streamline Refinance: Lenders won’t have to check your credit score or income. Your payment history will show whether you’re qualified. Avoid late payments in the year leading up to your refinance
- Credit Qualifying Streamline Refinance: With this option, the lender will check your personal finances to make sure you’re approved to borrow. This will be necessary to add a new co-borrower or remove a co-borrower from your loan
Closing costs will likely be a little higher for a credit-qualifying loan since it requires a credit check and more thorough underwriting.
FHA Streamline Refinance Closing Costs FAQs
What is the FHA Streamline program?
An FHA Streamline Refinance loan replaces an existing FHA loan with a new FHA loan. The new loan saves the borrower money, usually by replacing a higher interest rate loan with a lower rate loan. Streamline Refis can also lower monthly payments by extending the loan term, though the FHA won’t allow adding more than 12 years to the term.
Are there closing costs with an FHA Streamline Refinance?
Yes, lenders still charge loan origination fees and other lender’s fees. Borrowers also pay third party fees like title insurance and attorney’s fees. Most borrowers will need to pay prorated property taxes or insurance premiums.
How much does it cost to do an FHA Streamline Refinance?
Costs vary by lender, loan, and borrower. Expect to pay $1,500 to $4,000 for the typical Streamline Refi.
Does an FHA Streamline Refinance get rid of PMI?
No. FHA loans don’t charge private mortgage insurance (PMI). Instead, they require the FHA’s Mortgage Insurance Premium (or MIP). Unless they make a down payment of 10% or more, FHA homebuyers pay MIP for the life of the loan. MIP is required on an FHA Streamline Refinance.
What are the cons of an FHA Streamline Refinance?
Unless your current mortgage is an FHA loan, you can’t use an FHA Streamline Refinance. That’s a con. Also, this loan won’t allow cash back at closing. You’d need a cash-out refinance for that.
Is FHA Streamline Refinance a good idea?
It’s a great idea to get a Streamline Refi if the new loan saves you money every month — and if you’ll keep the home long enough for the savings to pay off. If you plan to sell the home in a year, it’s probably not a good idea to refinance now.
Can I roll closing costs into an FHA refinance?
No. An FHA Streamline replaces your current loan with a new loan that’s the same size. There’s no room to finance closing costs and there’s no room to cash out home equity. To do that, you’d need an FHA cash-out refinance.
Who qualifies for an FHA Streamline Refinance?
Existing FHA homeowners who can save money by getting a new loan can qualify for an FHA Streamline Refinance. FHA homeowners can also qualify if they need to remove or add a co-borrower or replace an adjustable-rate loan with a fixed-rate loan. To be eligible for refinancing, an existing FHA loan must be old enough for the borrower to have made at least six monthly payments.
How long does an FHA Streamline Refinance take?
FHA Streamline Refinances are quicker and easier than most other refinance types. You could close within a few weeks if everything goes as planned. However, closing times vary by lender and borrower. Some could take as long as 45 to 50 days.
FHA streamline loan borrowers aren’t hindered by closing costs
Even though the FHA Streamline Refinancing program doesn’t allow closing costs to be rolled into the new loan amount, borrowers don’t have to pay those fees out of pocket — the high demand for FHA loans gives mortgage lenders (and borrowers) more leeway to negotiate a lower rate and fee structure.
If your FHA loan’s mortgage rate is higher than the rate you could get today, there’s no reason to be paying more for your home loan than necessary — and that includes closing costs to refinance.