With mortgage refinance rates hitting all-time lows, millions of Americans are considering refinancing their homes. According to Freddie Mac, refinance activities increased by 6% percent among first-time homeowners in the opening months of 2020.
Those who have an FHA Loan have the option to refinance through the FHA Streamline Refinance program. This option is designed to help first-time homeowners take advantage of lower FHA interest rates based on their payment history.
Here’s what you need to know about FHA Streamline refinancing and when you should consider moving forward with this option.
What is the FHA Streamline Refinance?
As an alternative to conventional loans, FHA-insured loans are targeted toward first-time home buyers. FHA loans require a minimum down payment of 3.5%, with easier credit qualifications and lower closing costs.
The FHA Streamline Refinance program allows individuals and families with an FHA-insured loan to take advantage of lower mortgage rates with minimal paperwork. Instead of going through a credit check and income verification process, the FHA accepts a perfect on-time payment history as evidence the homeowner can re-qualify for a loan.
Homeowners with current FHA loans will find streamline refinancing is comparatively faster and easier than traditional refinance options.
“If the homeowner has made their payments on time over a period of time, they have pretty much done everything they need to do to qualify for the mortgage,” says Bill Banfield, executive vice president of capital markets at Quicken Loans. “If you’ve already been able to make your payments at the existing interest rate that you have, and can get an interest rate that’s a half-percent or more lower, you can use the FHA streamline refinance program and get the lower rates available on the market.”
Compared to a conventional mortgage, the FHA streamline process allows homeowners to skip many traditional refinancing requirements, including income verification and home appraisal. The process enables homeowners to save time and money.
For example, home appraisals can cost up to $600, which are added to closing costs. With an FHA streamline refinance, homeowners can skip the step, and ultimately reduce their out-of-pocket costs.
FHA Streamline Refinance Rates
Today, Monday, January 30, 2023, the average 30-year FHA Streamline Refinance rates is 5.650% with an APR of 6.570%.
The current mortgage interest rates are from Bankrate’s latest survey of the nation’s largest mortgage lenders.
FHA Streamline Refinance Eligibility Requirements
Must have an FHA mortgage: To qualify for an FHA streamline refinance, homeowners must already have an FHA-insured mortgage. Those with conventional mortgages do not qualify, while borrowers with VA Loans qualify for a different option: The VA Interest Rate Reduction Refinance Loan.
On-time payment history: Because the FHA streamline refinance qualifies homeowners based on making their monthly payments on time, the loan must be current. A history of late or missed payments could disqualify homeowners from the streamline refinance.
FHA refinance must prove beneficial for the homeowner: When the FHA streamline refinance is complete, the homeowner needs to be in a better financial place. This may be a reduced monthly payment, fewer years on the mortgage, or going from an adjustable-rate mortgage to a fixed-rate mortgage.
The Difference Between FHA and Conventional Refinance
There are several key differences between FHA streamline refinancing and traditional, private loan refinancing. The table below shows the major differences between the two.
|FHA Streamline Refinance||Private Loan Refinance|
|No credit check||Credit check required|
|No income verification||Income verification required|
|No appraisal needed (in most situations)||Appraisal required|
|Cash-out limited to $500||Cash-out from home equity available|
|Must have an existing FHA mortgage||Can have an FHA, VA, or conventional mortgage|
|Must pay 1.75% percent fee to FHA (upfront mortgage insurance premium).||No additional payment required|
|For homes with a loan-to-value ratio over 90% percent, homeowners must pay mortgage insurance||Homeowners won’t need to pay mortgage insurance once loan-to-value reaches 80% percent|
Is the FHA Streamline Refinance Right For Me?
For homeowners who already have an FHA mortgage, the FHA streamline refinance option may present a frictionless way to move into a new loan. Because of its flexibility, homeowners can quickly move from one loan to another, closing on a lower interest rate and payment in a few weeks.
“The streamline option comes with the flexibility where you can literally just come in and drop your rate,” says Banfield. “There’s a huge amount of FHA clients that will do the streamline because it’s the fastest, easiest option for them to lower their monthly payment.”
Streamline mortgages can also help those who have experienced hardship from when they first bought their home. In situations where homeowners are making less, or their homes may have lost value, an FHA streamline refinance can help them get into a lower rate when they may not necessarily qualify for a traditional loan.
“An FHA streamline refinance is a great option for someone who has a complicated income structure or whose income may have declined since purchasing their property,” says Victoria Kiser, senior loan officer at online mortgage lender Embrace Home Loans. “While employment is verified with this type of refinance, income is not verified.”
However, an FHA streamline refinance may not be for everybody. Homeowners who have improved their credit after purchasing their home or want to cash out from their equity may be able to get more favorable options from a conventional mortgage refinance. The new credit check could prove a better interest rate than opting for the no credit check streamlined process.
If the homeowner has improved their income, or improved their credit history, “there’s no real reason to do a streamline,” says Seth Feinman, vice president of New York-based mortgage lender Silver Fin Capital Group. Even without an FHA streamline loan, Feinman says some properties may qualify for an appraisal waiver, which can save the homeowner in closing costs. Those who have a newer home, improved credit, and would like to explore buying points to reduce the interest rate may want to consider a traditional refinance instead.
FHA MIP Refund
The vast majority of FHA loans require a one-time upfront mortgage insurance premium (MIP) payment as part of the loan’s closing costs. FHA Streamline Refinance loans require this same MIP payment, but you may also be eligible for a refund of previous MIP payments. In most cases, to qualify for a prorated MIP refund you must refinance to another FHA loan within the first three years.
The amount you may be refunded starts at 80% of your MIP and decreases by 2% each month. So if you use the FHA Streamline Refinance program 16 months after you took out your initial FHA loan, you could be credited for 48% of the original MIP you paid.
How the FHA Streamline Works
In many ways the FHA Streamline Refinance program works similarly to other refinance options, but there are some key differences. It is designed to provide a financial benefit to current FHA borrowers, usually in the form of a lower monthly payment or by converting an adjustable interest rate into a fixed rate. So you can’t take cash out with a streamline refinance.
It also has simplified qualification standards. In lieu of a credit check and income verification you just need a track record of making on-time payments. You must have no late payments in the past three months. If you’ve had your existing mortgage for more than a year, you can have one late payment of 30 days or more within the past 12 months. Individual lenders may have lending standards above these requirements and you could be denied for the loan with any late or missed payments.
What Happens to FHA Mortgage Insurance if You Streamline Refinance?
When you refinance under the FHA Streamline Refinance program you will still be required to pay the upfront mortgage insurance payment and an ongoing annual mortgage insurance premium (MIP). Depending on when you took out your original FHA loan, you pay more or less in upfront and ongoing MIPs. Most FHA loans will have an upfront fee of 1.75% of the loan amount and an ongoing annual MIP in between 0.45% to 1.05% of your loan balance.
FHA Streamline Refinance FAQ
Do I have to pay closing costs on an FHA Streamline Refinance?
You do have to pay closing costs with an FHA Streamline refinance. Refinance closing costs typically range from 3% to 6% of the loan amount, depending on where you live, the lender’s fees, and your personal circumstances. Unlike with other types of refinance loans, you cannot roll the closing costs into the new loan.
Does an FHA Streamline Refinance get rid of mortgage insurance?
When you take advantage of the FHA Streamline Refinance program, it does not remove the mortgage insurance payment from your loan. And in most cases, you will also be responsible for an upfront MIP of 1.75% of the loan balance, although any MIP refund will be deducted from that amount.
Does FHA Streamline require a credit check?
An FHA Streamline Refinance may not require a credit check. Instead, you must be up to date with your payments and have a history of on-time payments.
Can you cash out on an FHA Streamline?
An FHA Streamline Refinance does not allow you to get more than $500 back from the transaction. There are FHA cash-out refinance loans available, but they have qualification requirements of standard refinance loans. So you would need to meet the credit score and income guidelines.
What documents do I need for an FHA Streamline Refinance?
Even though an FHA Streamline Refinance has a simplified application process, you’ll need documentation to show the following:
- Proof you’re current on your existing FHA loans payments
- Proof of current interest rate
- Employment verification
- Proof of funds to cover closing costs
- Proof of insurance
Your lender should provide you with a checklist of acceptable documents. What you’ll need to be able to show is that the refinance is providing a financial benefit to you and that you’ve been making your mortgage payments.
When can I do an FHA Streamline Refinance?
You can take advantage of the FHA Streamline Refinance program only if you currently have an FHA loan. There is also a waiting period before you can apply for an FHA Streamline Refinance. It will need to have been at least 210 since you closed on your existing home loan, at least six months since your first mortgage payment was due, and you’ll need to have made at least six payments on the mortgage you’re refinancing.
Can you do FHA Streamline Refinance twice?
You can use the FHA Streamline Refinance program more than once, but you’ll need to meet all the guidelines. So you’ll need to be up to date with your payments and meet the waiting period requirements. Keep in mind, you’ll also have to pay closing costs each time you refinance.
What are the benefits of an FHA Streamline?
For homeowners with an existing FHA mortgage, an FHA Streamline Refinance has several benefits compared to other refinancing options. First off, the out-of-pocket fees you pay to refinance could be slightly lower than a traditional FHA refinance because you may be able to skip the appraisal and save yourself $300 to $600. One of the biggest benefits is how much simpler the closing process can be. With no income verification or credit check required, you may be able to get your loan refinanced much more quickly.