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An FHA streamline refinance is an option for homeowners that allows borrowers to refinance their mortgage with less paperwork and credit documentation. In some cases, borrowers can refinance without a new appraisal, credit check, or income verification.
Only mortgage loans insured by the Federal Housing Administration (FHA) qualify for a streamlined refinance. The FHA program is intended to make it easier for consumers to obtain mortgage refinancing from a participating lender. However, the loan must be an FHA-insured mortgage and cannot be delinquent on the payments.
The Federal Housing Administration (FHA), overseen by the U.S. Department of Housing and Urban Development (HUD), insures mortgage loans to protect lenders against default. As a result, FHA mortgage loans offer benefits to borrowers, including a downpayment as low as 3.5% versus the traditional 20%. Although the FHA insures the loan, you must go through an FHA-approved lender.
The streamlined refinance program helps lenders and consumers by reducing the amount of paperwork and the number of steps during a mortgage refinance. The objective of the refinance can be to reduce the homeowner’s monthly interest and principal payment or reduce the loan's term. However, no more than $500 in cash can be taken out on the refinanced mortgage.
The FHA does not require an appraisal on a streamline refinance. Instead, it uses the homeowner's initial purchase price. It also may not require a credit report, although the mortgage lender might require it as part of their credit policy.
FHA-insured mortgage loans are a popular choice for first-time homebuyers because FHA loans often require smaller down payments and lower credit scores than other conventional mortgages. However, these types of mortgages are only offered by banks that are FHA-approved.
On signing the mortgage, the borrower agrees to pay 1.75% of the loan amount as an upfront fee, also known as up-front mortgage insurance (UFMI), and annual fees for the mortgage insurance premium (MIP) totaling 0.45% to 1.05%.
Although an FHA streamline refinance reduces the paperwork and costs for lenders and consumers, it doesn't mean there are no costs. The borrower will still be charged closing costs.
There are two forms of this refinance available—credit qualifying and non-credit qualifying. There are some differences in the agency's requirements for each type.
A credit qualifying streamline refinance is required when the new mortgage will result in a mortgage payment increase of 20% or more. As a result, the mortgage lender must:
Non-credit qualifying borrowers do not have to submit a new application with job and credit verification. No credit check streamline refinances are available to homeowners who have owned the property for at least six months.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report with the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).
The biggest requirement for an FHA streamline refinance is demonstrating a net tangible benefit. In effect, this means that the homeowner must show the FHA that refinancing will be to their quantifiable financial benefit. This net tangible benefit could be achieved by reducing the mortgage term, the interest rate, or both.
So, for example, a homeowner would not meet the requirements for an FHA streamline refinance if the new mortgage lowers the monthly payment only by extending the total number of payments due. The homeowner will pay the same amount over time and has not achieved a net financial benefit.
Yes. A borrower will still need to pay closing costs for a streamlined refinance, which can average 3%-6% of the borrowed amount.
No. You do not need to pay for an appraisal with a streamlined refinance.
Yes. Mortgage lenders offer a no-cost mortgage, which rolls the closing costs into the borrowed amount or embeds the costs into the interest, resulting in a higher interest rate.
The FHA streamline refinance program can help borrowers save money when refinancing their existing FHA mortgage loan. The program comes with less paperwork, credit documentation, and no appraisal. However, the borrower can not take more than $500 in cash from the refinance and must prove they receive a net tangible benefit by refinancing.