What is an FHA Streamline Refinance?

The FHA streamline refinance is a mortgage refinance product through the Federal Housing Administration (FHA). The FHA assists homeowners with an existing FHA loan in lowering their interest rate and monthly payment.

Compared to the traditional refinance that is more involved, an FHA streamline refinance can help you save time because there are fewer documentation requirements. Let us dive into what is involved and why an FHA streamline might be the right choice for you.

FHA Streamline Refinance Options

There are two types of FHA streamline refinances for borrowers to choose from:

1. Credit qualifying FHA streamline refinance—this type requires a credit check and analysis, but an appraisal is not required.

2. Non-credit qualifying FHA streamline refinance—neither a credit check nor appraisal is needed with this type.

Your lender will be able to tell you which type you qualify for and whether or not your credit needs to be pulled. Most lenders consider 650 or above to be a satisfactory credit score for an FHA streamline refinance.

FHA Streamline guidelines and requirements

1. Current mortgage loan type

First and foremost, you must already have an FHA loan in order to qualify for the streamline refinance. If you have a different mortgage type, like a conventional or VA loan, an FHA streamline can not be done.

2. Net tangible benefit

FHA guidelines require a financial benefit to the borrower in order to refinance. The net tangible benefit test varies based on the details of your loan and prevents borrowers from refinancing unnecessarily. It also protects them financially.

3. Time between closing and applying

You may be wondering how soon you can refinance an FHA loan. There are a few guidelines that outline the amount of time you are required to wait between closing on your FHA loan and applying for a streamline refinance. You must:

• Make at least six payments on your FHA mortgage.

• Wait at least six full months since the first mortgage payment was due.

• Have had at least 210 days pass from the closing date of the mortgage you are refinancing.

4. Good payment history

In order to qualify, it is important you have a history of on-time mortgage payments on your current FHA loan. Here is what that looks like:

• You have had no payments that were more than 30 days late in the past six months.

• You have had no more than one late payment that was overdue by more than 30 days in the past 12 months.

FHA streamline refinance closing costs

If you are considering a streamline refinance, it is important to note that closing costs are required. Typical closing costs for an FHA streamline will vary from lender to lender, but some fees are constant. Let us see what they are:

• Up-front mortgage insurance premium (UFMIP): If the current FHA loan is less than three years old, there is a refund credit to reduce the UFMIP.

• Title fees: These will vary based on location and may include title insurance and settlement fees. You will receive a loan estimate when you apply and talk to your lender. That estimate will include all of your costs.

• Escrow accounts: If you have taxes and insurance included in your payment, and you decide to switch lenders, you may need to come up with some property tax or homeowners insurance funds for the new lender's escrow account. Ask your lender about this.

When it comes to paying for the closing costs, you can choose to:

1. Pay for them out of your pocket.

2. Roll them into the loan and increase the loan balance.

3. Accept a higher interest and have the lender cover the costs.

For any type of refinancing, FHA, VA, or conventional, you will see advertisements for a "zero-cost" refi. But zero-cost up front means you may be paying more in the long run. Here is how it works.

The lender charges you a higher interest rate and pays for the closing costs. If you want the lowest interest, you will need to:

• Roll the costs into your loan, which will increase your balance

• Or you can pay for the closing costs out of your pocket

And when it comes to lender fees, they vary. Some charge an origination fee, and others do not. It is good to compare all your options.

Streamlines are not a cash-out

FHA streamlines only allow up to $500 in cash out at most. So, if you need more than that, consider a regular cash-out refinance.

With a cash-out refi, you can get money for debt consolidation, home improvements, or whatever you need as long as you have enough equity. The other options are a home equity loan or a HELOC.

Can I refinance an FHA loan to conventional?

Yes! You do have the option of refinancing your FHA loan as a conventional loan. Instead of a streamline FHA, many homeowners opt to refinance to a conventional loan. It gives them the opportunity to get rid of their mortgage insurance premium and lower their monthly payment or even take money out from the equity in their home. However, the FHA benefits would no longer apply to the conventional loan.

Here is what you need in order to refinance to a conventional mortgage based on PenFed’s requirements:

• Satisfactory credit score (typically 650 or higher)

• Proof of income (often one to two months of paystubs)

• At least one year of W2s

• Acceptable debt-to-income ratio (DTI)

Overall, FHA loans have many advantages. If you have an FHA mortgage and you are interested in lowering your interest or changing the term of your loan, an FHA streamline might be your best option.