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An FHA streamline refinance can help you get a lower interest rate on an existing FHA-insured home loan. On top of that, they don’t require a home appraisal like most traditional refinancing options and can be easier to qualify for than a conventional refinance.
Here is a closer look at FHA streamline refinances and how to qualify for one:
- What is an FHA streamline refinance?
- FHA streamline refinance requirements
- Pros and cons of an FHA streamline refinance
- Is an FHA streamline refinance right for you?
What is an FHA streamline refinance?
An FHA streamline refinance allows you to refinance your current FHA home loan and potentially lower your monthly payment.
It can be easier to qualify for an FHA streamline refinance than other mortgage refinance options as there is less paperwork and the underwriting process is less rigorous.
For example, you don’t need a home appraisal and may not need a credit check as your current FHA loan payment history is the primary qualification requirement.
Like your existing FHA mortgage, closing costs may apply. Although some lenders may offer “no-cost” refinances that don’t require upfront closing costs but charge a higher interest rate instead.
Good to know: Your current FHA home loan must be at least six months old and without delinquent payments to qualify for the FHA streamline refinance program. Non-FHA home loans do not qualify. You’ll also continue paying mortgage insurance premiums (MIP) for the life of the new loan.
Credit-qualifying vs. non-credit qualifying
Your lender may have you apply for one of these FHA streamline refinance options:
- Credit qualifying: Lenders require income verification and a qualifying credit score. You can qualify for the lowest mortgage interest rates and also remove a borrower from the title for reasons other than divorce, legal separation, or death.
- Non-credit qualifying: No income or credit check is necessary. Naturally, this is the faster, easier option. However, you may not receive the best rates, and you can only remove borrowers for qualifying reasons.
Whether you pursue a credit qualifying or a non-credit qualifying refinance, the basic refinancing requirements are similar.
FHA streamline refinance vs. FHA cash-out refinance
An FHA streamline refinance only modifies the rates and terms of your existing FHA loan balance. You may only cash out up to $500 above your current loan amount using the FHA streamline refinance process.
On the other hand, an FHA cash-out refinance lets you access up to 80% of your home equity. Non-FHA mortgages are eligible for an FHA cash-out refinance but you’ll be subject to a credit check and home appraisal.
FHA streamline refinance vs. conventional refinance
An FHA streamline refinance can be easier to qualify for when you have bad credit as your current mortgage payment history is the dominant requirement. Repayment terms and interest rates are often competitive with traditional lenders.
The primary benefit of refinancing into a conventional loan is that you can remove FHA mortgage insurance with a qualifying down payment or home equity position. But to do this, you’ll typically need to have a credit score of at least 620. Lenders will also require a home appraisal and want to see a low debt-to-income ratio.
|FHA Streamline Refinance||Conventional refinance|
|Credit score||No credit check required||620+|
|Equity||No minimum||20% (if you want to avoid mortgage insurance or take cash out)|
|Documentation||Proof of employment or a utility bill to prove the home is your primary residence||Credit report, tax returns, pay stubs, W-2s|
FHA streamline refinance requirements
FHA streamline refinance requirements are less stringent than other refinancing options as there are fewer income, credit, and home appraisal factors to account for.
Here are the minimum guidelines for the FHA streamline program:
- FHA-insured loans only: Unlike an FHA cash-out refinance, only existing FHA loan borrowers can participate in the FHA streamline refinance program.
- Eligible properties: In addition to an FHA-insured mortgage, you must have a qualifying property type. Principal residences, HUD-approved secondary residences, and non-owner occupied properties can qualify.
- No late payments: The current FHA guidelines permit one 30-day late payment in the last 12 months. However, your mortgage must be current and not have any late payments during the most recent six months.
- Six-month waiting period: You’ll need to wait at least six full months after your first payment date before you can refinance your loan.
- Net tangible benefit: You’ll need a better interest rate, payment term, or both so that the loan has a net tangible benefit. Essentially, the numbers need to work in your favor. For instance, you can’t reduce your term but take on a higher interest rate.
- Credit score requirement: The FHA doesn’t require a minimum credit score to qualify for a non-credit qualifying loan. However, lenders may require a minimum credit score for a credit qualifying streamline refinance.
- Income verification: Credit qualifying loans require income verification to qualify for the best FHA streamline refinance rates.
Summary: If you have an FHA loan that’s at least six months old, has a current balance, and your new terms will result in a lower monthly payment and interest rate, you have a chance at qualifying for an FHA streamline refinance.
You won’t find rates for FHA refinances at Credible, but if you’re looking for a great rate on a conventional refinance loan, we can help with that. It only takes a few minutes to compare personalized, prequalified rates from all of our partner lenders.
Pros and cons of an FHA streamline refinance
Here’s a closer look at the advantages and disadvantages of using the FHA streamline program.
- No home appraisal: Not needing a home appraisal reduces the refinancing costs. You can also qualify for refinancing when your home value is less than the mortgage principal or original purchase price.
- Faster approval process: With a non-credit qualifying streamline loan, there’s no income verification, home appraisal, or credit check, so you’ll get to enjoy a faster and easier approval process.
- Relaxed borrower requirements: An FHA streamline refinance is generally easier to qualify for than a traditional refinance. Lenders use your on-time payment history to determine your creditworthiness and the minimum credit score to qualify is lower.
- Potentially lower monthly payment: Refinancing into a lower mortgage rate will lead to a smaller monthly payment and provide you with some breathing room in your finances.
- FHA mortgages only: You can only refinance an existing FHA mortgage with the streamline refinance program. Homeowners with conventional, USDA, and VA loans, however, are eligible for FHA cash-out refinances.
- Mortgage insurance premium: You’ll continue to pay an annual MIP for the life of the loan. An upfront mortgage insurance premium is also necessary but you might be able to receive a partial refund for your existing premium.
- Closing costs: You’re responsible for paying closing costs out-of-pocket. A no-closing-cost loan is available if you’re willing to accept a higher interest rate as FHA lending guidelines prohibit rolling the fees into the mortgage principal.
- No cash-out option: You can cash-out up to $500 with an FHA streamline refinance. However, an FHA cash-out refinance might be the better option if you need your home equity for a significant expense, such as home repairs.
Is an FHA streamline refinance right for you?
An FHA streamline refinance can be a great option when you want to avoid the traditional underwriting process and refinance your existing FHA loan. You’ll just need to make sure you are current on your mortgage and past the waiting period, and that the refinance offers you a net tangible benefit.
If you’re comfortable with having an FHA mortgage, a streamline refinance can be the quickest and least stressful way to adjust your rate and loan term.
However, don’t rule out a conventional refinance. Conventional refinances can be a better option for several reasons, including competitive rates and terms and not having to pay mortgage insurance premiums.
Here’s a quick breakdown if you’re still trying to determine whether to go with an FHA streamline refinance or a conventional refinance:
|Best if you...||Refinance option|
|Have 20% equity in your house||Conventional|
|Want to take cash out||Conventional|
|Don’t have great credit||Streamline|
|Want to get rid of mortgage insurance||Conventional|
|Can’t prove your employment or income||Streamline|
Keep Reading: No Appraisal Refinance: Is It Worth It?