The FHA streamline refinance program helps current FHA homeowners lower their interest rate and monthly payment — it’s a quick and cost-effective way to refinance with lenient documentation requirements and credit standards.
Also, if your FHA loan is under three years old, then you may be eligible for an upfront mortgage insurance premium refund. This refund allows a portion of the original loan’s paid premium to be applied to the upfront mortgage insurance premium of the new FHA streamline refinance loan. This means less money is required at closing.
In this article:
- Is an FHA streamline refinance worth it?
- Do I qualify for an FHA streamline refinance?
- FHA refinance rates today
- Our recommended refinance lenders
- How does an FHA streamline refinance work?
- What documents do I need?
- Closing costs for FHA streamline refinances
- Net Tangible Benefit requirement
- FHA mortgage refund
- FHA streamline refinance FAQ
In general, FHA streamline refinances are worth it if there’s a financial benefit to you like a lower interest rate and monthly payment. This is true of all refinances — if it’s not going to benefit you, then it’s likely not worth it.
Streamline refinances offer some specific advantages when compared to other refinance loan types, including:
- No income documentation is required like pay stubs and W2s
- Lower available interest rates
- Faster closing times than traditional refinances
- No appraisal is required
- Underwater homes are eligible
- Potentially eligible for a partial refund of upfront mortgage insurance from original loan
FHA streamline refinance loans are available to homeowners who currently have an FHA loan with a good payment history. Homes that have lost value and are now underwater are eligible too.
The most important qualification though, is that borrowers must receive a benefit from refinancing. This is called a net tangible benefit — FHA refinances can be approved if the combined interest rate drop is at least 0.5% (see Net Tangible Benefit section below).
Current FHA rates are some of the lowest in history. According to Ellie Mae’s January 2020 Origination Report, the average 30-year rate on FHA loans hovered at 3.91% in January. This means FHA rates are lower than conventional loan rates at 4.03%.
The refinance interest rate you’ll qualify for will depend on factors like your credit score, interest rate type, and loan type. You’ll have to speak to lenders to determine the specific FHA refinance rate you’re eligible for. Compare quotes from three to four lenders to make sure you’re getting the best rate and terms — the CFPB reports that comparison shopping can save borrowers approximately $300 per year and thousands over the life of the loan.
In general, FHA streamline refinances are easier to qualify for than home purchase loans. If you meet five key requirements, then your streamline refinance will likely be approved. Those key requirements include:
1. On-time payment history
You must show a history of on-time mortgage payments to qualify for an FHA streamline refinance. If you have had a late payment, you are not automatically disqualified though. You can rebuild your history moving forward and qualify 12 months after your second most recent late payment.
FHA streamline refinance loan payment requirements:
- If your mortgage is less than 12 months old, then all mortgage payments must have been paid on time.
- If your mortgage is 12+ months old, then no more than one payment is permitted to be 30+ days late. The three months’ payments prior to the loan application must have been made on time.
All FHA streamline refinances must result in a Net Tangible Benefit (NTB) for the borrower — the refinance must improve the borrower’s financial position as defined by the FHA. Generally, NTB is defined as reducing the borrower’s “combined rate” by at least 0.5%. (A combined rate is the interest rate of the loan plus the insurance premium rate.)
For example, a homeowner has a current interest rate of 4.5% and an insurance premium of 1.35% for a combined rate of 5.85%. If the homeowner refinances into a 4% interest rate with an insurance premium of 1.35%, then the new combined rate of 5.35% is a 0.5% reduction.
The 0.5% “combine rate” reduction rule applies if you’re refinancing a fixed-rate mortgage into another fixed-rate mortgage. If you’re refinancing into (or out of) a one-year ARM or Hybrid ARM (3-, 5-, 7-, or 10-year ARM), then there are different NTB requirements.
Net Tangible Benefit (NTB) Combined Rate Requirements
|Current Loan Type||Refinance Loan Type||NTB Requirements|
|Fixed rate||Fixed rate||Decrease at least 0.5%|
|Fixed rate||One-year ARM||Decrease at least 2%|
|Fixed rate||Hybrid ARM||Decrease at least 2%|
|Any ARM w/ less than 15 months in fixed period||Fixed rate||Increase no more than 2%|
|Any ARM w/ less than 15 months in fixed period||One-year ARM||Decrease at least 1%|
|Any ARM w/ less than 15 months in fixed period||Hybrid ARM||Decrease at least 1%|
|Any ARM w/ greater than 15 months in fixed period||Fixed rate||Increase no more than 2%|
|Any ARM w/ greater than 15 months in fixed period||One-year ARM||Decrease at least 2%|
|Any ARM w/ greater than 15 months in fixed period||Hybrid ARM||Decrease at least 1%|
3. FHA streamline waiting period
There’s a waiting period between when you first closed your loan and when you can refinance. So, if you’ve just closed on your loan, then you’re not eligible for an FHA streamline refinance.
The FHA streamline refinance waiting period requirements include:
- You have made at least six on-time payments on your current FHA mortgage
- It’s been at least six months since your first payment due date
- 210 days have passed since the day your current mortgage closed
For example, if your current FHA loan closed on November 28, 2018, then your first mortgage payment was due on January 1, 2019. You can refinance as soon as July 1, 2019 — 210+ days after closing and six months after your first payment.
4. Minimum credit score
The FHA does not require a credit report as part of the streamline refinance loan application. Most lenders will require one, though. A standard minimum credit score for the FHA streamline refinance program is 640. However, some lenders may allow a score between 600-620. If you’re denied, shop around.
Closing costs on streamline refinances are generally the same as with other mortgages, except that there is no appraisal fee (unless you opt for one). You may also need to pay a portion of property taxes and insurance at closing.
For example, if your jurisdiction’s property taxes are due in the next few months, lenders require you pay that tax installment. Keep in mind, though, that you’ll receive a check from your current lender for taxes and insurance you’ve paid on your current loan, but haven’t been disbursed.
If you’re short on cash, then ask your lender if they offer lender credits — for a slightly higher interest rate, you can use the profits from the loan to pay for closing costs. Or, if you have equity in your home, then with an appraisal you may be able to wrap closing costs into the new loan amount.My Mortgage Insider Tip
Are there closing costs with an FHA streamline refinance?
Generally, you can expect to pay between $1,000 and $5,000 in FHA streamline closing costs, though this amount may be higher or lower depending on your loan amount and other factors. You’ll need to provide 60 days of bank statements showing you have enough money to cover any out-of-pocket closing costs.
Your loan officer will provide an estimate of total funds due. This estimated out-of-pocket amount may increase during the mortgage process, though. Be prepared to provide updated or additional bank statements to prove you have funds to cover the increased amount.
Note: Provide all bank statement pages, even blank ones, to your lender. Make sure your name, address, and account number appear on your statement too. Online bank printouts often don’t include your personal information, so you’ll need the mailed version or the PDF version of your full statement.
Even though FHA streamline refinances have minimal documentation required for the loan application, that doesn’t mean there’s no documentation. Below is a list of things you’ll likely need for your streamline refinance loan application, including your:
- Current mortgage statement
- Current FHA loan’s mortgage note, which shows your current interest rate and loan type
- Final settlement statement (final HUD-1) or Deed of Trust with the FHA case number of your current loan
- Employer HR department’s contact information (lenders need to verify your employment, not your actual income)
- Two months of bank statements that shows you have enough funds to pay for any out-of-pocket costs
- Homeowners insurance agent’s contact information to obtain current proof of insurance
Also, make your next month’s mortgage payment as soon as possible. This allows your lender to obtain proof that your FHA mortgage is current. Your lender may require more or less than the items listed above.
Other things to note about FHA streamline refinances
While streamline refinances are generally easy to apply and get approved, there are some things to consider in regards to the FHA loan program.
Adjusting loan types and terms
The FHA has specific rules on what types of loan adjustments are allowed. Not every loan type can be converted to another loan type or term when using a streamline refinance. Some of the most common questions on these adjustments are:
- Can I refinance my 30-year loan to a 15-year loan? No. The FHA does not allow reducing your loan term with a streamline refinance.
- Can I refinance my 15-year loan to a 30-year loan? Yes. Your combined rate must decrease by at least 0.5%.
- Can I refinance my ARM to another ARM? Yes. You may use an FHA streamline refinance to refinance an adjustable-rate mortgage (ARM) to another ARM (for primary residences only).
- Can I refinance my ARM to a fixed-rate mortgage? Yes. Though, there are additional requirements dependent on the type of ARM and the original closing date. (See the Net Tangible Benefit section.)
- Can I refinance my fixed-rate mortgage to an ARM? Yes. The combined rate requirement must be a 2% decrease.
There are two types of streamline refinances — those with an appraisal and those without. The majority of people opt for the no-appraisal option, because the application process is quicker, cheaper, and no equity is required.
So, why would someone get an appraisal on an FHA streamline refinance? Because you can only include closing costs in the new loan amount on streamline loans with an appraisal. Otherwise, closing costs have to be paid out of pocket (or with a lender credit).
If you order an appraisal, make sure you have enough equity in the home to cover the existing balance of the loan, closing costs, and any interest due. If you don’t have have equity in your property, it’s best not to obtain an appraisal.
If you opt for a no-appraisal FHA streamline refinance, the maximum loan amount may include:
- The current principal balance
- Up to one month’s worth of interest payments
- The new upfront mortgage insurance fee (subtract the mortgage insurance refund if applicable — applies if FHA loan originated less than three years ago)
Mortgage insurance premiums
There are two types of mortgage insurance premiums for FHA loans — upfront and annual. Upfront mortgage insurance premiums (UFMIP) is a one-time fee charged when you close the loan. All FHA loan types UFMIP is 1.75% on the base loan amount. Annual insurance premiums are paid over the life of the loan in most cases. Percentages vary and are dependent on the base loan amount, your down payment amount, and the loan term. (See FHA insurance premium rates.)
When you refinance a current FHA loan, you may be entitled to a refund of the upfront mortgage insurance you paid when you opened your existing FHA mortgage. Usually, refunds are only available if the FHA loan is refinanced into another FHA loan within the first three years.
The refund amount is determined by how long ago the current loan was opened, and when the new FHA refinance loan closes. The refund amount decreases each month. If you refinance within 12 months, you may be refunded as much as 60% of your original upfront mortgage insurance. But, if you refinance after 30 months, you’ll only receive about 20%.
FHA streamline refinance loans and condominiums
Many condominiums have lost their FHA eligibility over the past few years. FHA streamline refinances are available on condos that were approved at the initial opening of the loan, but have since lost their approval, though.
The exception: When an appraisal is needed to qualify for the loan. In this case, the condo complex needs to be currently FHA-approved.
Is cash back allowed on an FHA streamline refinance?
Cash back is not allowed for a streamline refinance loans. For that, you’ll need to apply for an FHA Cash-out Refinance.
The FHA does permit a small amount of cash, usually less than $500, to go to the borrower. Some lenders limit the amount to $250 or less. The cash back can only be the result of incidental changes in closing calculations, which happens often with all mortgages.
Can I refinance my second home or investment property with an FHA streamline refinance?
In most cases, the FHA allows streamline refinances on second homes and investment properties as long as the property currently has an FHA loan. Some lenders only accept streamline refinances on primary residences. It’s best to ask your lender about their specific rules.
Also, if your monthly payment is increasing of the new loan type is an ARM, then you won’t be able to use a streamline refinance — they’re not permitted on second homes and investment properties.
Can I add or remove borrowers with an FHA streamline?
The FHA permits a borrower to be removed from the original loan as long as one of the original borrowers remains on the loan. If you want to “assign” the loan to another borrower entirely, though, then you can’t use an FHA streamline refinance. Also, borrowers can usually be added to the title without income or asset review. Though, check with your lender specifically to see if they allow it.
Can I use an FHA streamline to refinance my completed 203k rehab loan?
The FHA allows this type of refinance without an appraisal, though, your lender may require one. The completed work must be evidenced by:
- A certificate of completion
- A final release of the rehabilitation escrow account
- The original lender’s completion of the 203k closeout process
Can I use an FHA streamline if my home needs repairs?
The FHA does not require repairs on a home that is in sub-par condition as long as there is no appraisal required for the transaction. If you opt for an appraisal (or, your lender requires one), then you will be responsible for completing those repairs before loan approval.
Check FHA refinance rates today
The FHA streamline refinance is a great option for current FHA homeowners to lower their interest rate and monthly payment. And, with lenient credit standards and documentation requirements it can be the fastest and most cost effective options to refinance an FHA loan.