If your current mortgage is backed by the Federal Housing Administration (FHA) and you’re thinking of refinancing, the FHA streamline refinance program is a quick and painless option worth considering. You won’t need income or employment documents, and there’s no minimum credit score or home appraisal requirement — making it a hassle-free way to snag a lower interest rate and reduce your monthly payment.
The FHA streamline refinance is a program that allows homeowners to replace their current FHA loan with a new FHA loan that provides some financial benefit. The “streamline” part refers to the simple approval process — you can skip the income verification and home appraisal, and you won’t even need a full credit report.
The FHA offers two types of streamline refinances: noncredit-qualifying and credit-qualifying. Most borrowers choose the noncredit-qualifying option to take advantage of the easy approval process.
The content below describes the features of a noncredit-qualifying FHA streamline refinance.
An FHA streamline refinance might be right for you if you want to:
You may receive lower monthly payments
You aren't required to provide income documents
You aren't required to verify your employment
Your other debts won’t be considered
You won’t need a home appraisal
You’ll provide less documentation, which may lead to a faster turnaround time
You’ll pay fewer closing costs (there’s no appraisal or credit report fee)
You can add a borrower to the loan without a credit check
You can use it for a primary residence, vacation home or a rental property
You won't face FHA prepayment penalties
You must have a current FHA mortgage
You can’t qualify until you’ve made six consecutive payments on your current FHA loan
You can’t remove a co-borrower except in cases of divorce, legal separation or death
You can’t take more than $500 cash out
You’ll have to pay another upfront mortgage insurance premium and continue to pay annual mortgage insurance
You can’t roll closing costs into your loan amount
Although the streamline refinance program makes a refinance relatively simple, there are still requirements to meet, including an evaluation of your financial situation. The good news is that these rules aren’t designed to weed out people with low credit scores or precarious finances —they’re meant to ensure the program that helps them. Before issuing a new FHA loan, lenders will need to verify your application meets the following eight requirements.
1. You must already have an FHA loan. If you’re unsure about whether your current home loan is an FHA loan, check your monthly mortgage statement or deed of trust for an FHA case number. If you’re still not sure, contact your lender.
2. Your monthly payments must have been made on time. The most important factor is whether you’ve had any late payments over the last 12 months. A mortgage-only credit report will provide details about your payment history. If you’ve had your mortgage for less than 12 months, you must have made on-time payments the entire time.
3. Your current score will determine the rate you’re offered. There’s no minimum required credit score if you want to go with a noncredit-qualifying refinance, but the refinance may not make sense if your score isn’t high enough for you to get a better rate than you currently have.
4. Your current mortgage waiting period must be over. At least 210 days need to have passed since your original FHA mortgage was closed, and you’ll also need to have made at least six payments, before you can move ahead with a streamline refinance.
5. Your refinance must pass a “net tangible benefits” test. To make sure you’ll benefit from an FHA streamline, lenders must evaluate the “net tangible benefit” requirement. To meet the requirement, you must benefit from an FHA streamline by:
→ Lowering your mortgage rate by at least a half percentage point (0.5%). For example, if your current interest rate is 4%, the new rate must be 3.5% or lower.
→ Refinancing an ARM to a fixed-rate loan.
→ Choosing a shorter term, such as a 15-year fixed mortgage, to pay off your loan sooner.
6. You have enough cash to close. FHA streamline refinance guidelines don’t allow you to fold FHA closing costs into an FHA loan balance; you can only roll the cost of the interest and mortgage insurance premiums into your current mortgage. For the rest, you’ll have to prove you have enough cash to cover the closing costs. These closing costs can also be paid with a gift from a relative, close friend, employer, government housing agency or charitable organization.
7. You’ll pay FHA mortgage insurance again. You won’t get a break on FHA mortgage insurance, and will have to pay a new upfront and annual premium. However, you may be eligible for a refund of a portion of your upfront premium if you took out your current FHA mortgage within the past three years.
8. You’re living in the home as your primary residence. Lenders will ask for utility bills or some other proof that you currently occupy the home being refinanced. If the utility bills aren’t in your name, you may need to provide a pay stub or other employment document to show that you receive mail at the address of the home you’re refinancing.
Don’t feel stuck with your current lender — you can refinance with a different mortgage lender if you’d like. Comparing the rates of at least three to five different FHA-approved lenders will help you find out which lender can offer the best FHA streamline rates for you. Try a rate comparison site, and call your current lender to see what terms it offers.
You’ll receive a loan estimate within three business days of applying for a refinance loan. Once you narrow your choices to the right lender, get a mortgage rate lock to secure your rate.