Key takeaways

  • The FHA streamline refinance program makes it easier and cheaper for borrowers with FHA loans to refinance at lower rates.
  • There are two types of FHA streamline refinances: non-credit qualifying and credit-qualifying, with the latter requiring income verification and a credit check.
  • To be eligible for an FHA streamline refinance, there must be a net tangible benefit for the borrower, among other qualifications.

The FHA streamline refinance program makes it easier and cheaper for borrowers who have a Federal Housing Administration-insured mortgage to refinance their loans at lower rates. FHA streamline refinances are typically easier to get than traditional refinances, so those undergoing some form of hardship might want to consider one. Here’s what to know.

What is an FHA streamline refinance?

An FHA streamline refinance is a type of refinance loan available to FHA loan borrowers. As with any refinance, it involves taking out a new mortgage that you use to pay off your current one.It’s called a streamline refinance because the process of applying for the loan is much simpler than that of a standard refinance. There’s typically no requirement for a home appraisal, for example.

How does an FHA streamline refinance work?

The FHA streamline program is divided into non-credit qualifying and credit-qualifying refinances. Both types are designed to lower the monthly principal and interest payments on a mortgage insured by the FHA.

Credit-qualifying streamline refinances require the lender to verify your income, check your credit and confirm your debt-to-income ratio. Those requirements don’t apply to non-credit qualifying refinances; the lender can help you refinance without meeting them.Note: Although the FHA doesn’t require a credit check with a non-credit qualifying streamline refinance, the lender you work with might still pull your credit report. Talk to your loan officer for more details.The FHA requires lenders to consider doing a credit-qualifying streamline in certain cases, including when the refinance would reduce the mortgage payment by more than 20 percent.

FHA streamline eligibility guidelines

The FHA streamline refinance program has more relaxed lending guidelines than traditional refinances when it comes to an appraisal, credit check and income verification. Yet, it still imposes a number of eligibility requirements. The requirements can vary by lender, but here are the minimum standards:

1. You must refinance an FHA loan

This is the primary rule. In order to take advantage of the FHA streamline program, you must already have an FHA-insured mortgage.

2. You must receive a ‘net tangible benefit’

It’s only possible to do an FHA streamline refinance if it results in what the FHA calls a “net tangible benefit” for the borrower. These net tangible benefits are:

  • At least a 5% reduction in your mortgage payment (including the mortgage insurance premium); or
  • Changing from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (or from an ARM to another ARM if the outcome results in another net tangible benefit)

ARM streamline refinances have other specific requirements, as well. If you’d like to streamline refinance a one-year ARM to a fixed-rate loan, for example, the new interest rate can’t be more than two percentage points higher than the current ARM rate. The inverse is also true: If you’re refinancing a fixed-rate loan to a one-year ARM, the new rate must be at least two percentage points lower than the fixed rate.

3. You can only apply after a waiting period

You can’t apply for a streamline refinance immediately after closing your FHA loan. You’ll need to wait until:

  • You’ve made at least six on-time payments;
  • Six months since your first payment due date; and
  • 210 days since your FHA loan closed

4. You must have a history of on-time payments

If your FHA loan is less than a year old, you’ll need to have made all of your monthly payments on time. If you’ve had your mortgage for more than a year, you’re allowed one 30-day late payment in the past 12 months — but, you must have made all mortgage payments on time for the three months prior to applying for the refinance.

5. You must pay mortgage insurance premiums

Like all FHA loans, you’ll pay mortgage insurance premiums (MIP) on an FHA streamline refinance. This means another upfront MIP, plus annual MIPs, at the following rates:

  • Upfront MIP: 1.75 percent of the loan amount
  • Annual MIP: Varies based on loan amount, LTV ratio and loan term, between 0.15 percent and 0.75 percent

Depending on when you got your initial FHA loan, you might be able to get a portion of the upfront MIP refunded when you refinance. The longer it’s been, the lower the refund. This refund could help you pay the MIP on the new loan.

Pros and cons of FHA streamline refinances

Pros of an FHA streamline refinanceg

  • Lower monthly payment: The FHA requires a “net tangible benefit” when doing a streamline refinance. These benefits include lowering your mortgage payment (including the mortgage insurance) by at least 5 percent.
  • No credit check: Having a low credit score typically won’t keep you from refinancing with this program.
  • No income verification: Unlike with a conventional mortgage, you won’t need to verify your income. That eliminates the need to provide some documents.
  • No appraisal: The refinance loan amount is determined by what you owe on your current mortgage, not your home’s current value. That can be very beneficial for borrowers in a negative equity situation
  • Faster time to close: Because a streamlined refinance doesn’t require a lengthy underwriting process, you could finalize the loan faster.

Cons of an FHA streamline refinance

  • Limited to FHA borrowers: If you don’t have an FHA loan now, you won’t qualify for this program. It’s not open to borrowers with a conventional or other type of mortgage.
  • Strict rules: To qualify for a streamline refinance, the new loan must have a “net tangible benefit” to you as the borrower. Depending on your refinance goals, these requirements might be harder to meet.
  • Repay mortgage insurance: When you refinance with an FHA streamline, you’ll have to pay the upfront mortgage insurance premium (MIP) again.
  • No cash out: You can’t do a cash-out refinance within the streamline program.

Current FHA streamline refinance rates

FHA refinance rates are usually competitive with the refinance rates for other types of loans. You can use a mortgage refinance calculator to see how lowering your rate or shortening or lengthening your loan term would impact your mortgage payment and total interest.

How to apply for an FHA streamline refinance

  1. Check your credit. Any time you apply for a new loan, it’s smart to check your credit reports and scores. Although the FHA allows lenders to forgo a credit pull on non-credit qualifying streamline refinances, some lenders might have policies to the contrary. If you see your credit could use some work, you’ll have time to take steps to improve your score, which raises your chances of a better rate.
  2. Find an FHA-approved lender. While you could go back to your current FHA lender, it pays to shop around, as rates vary from one lender to another. Many types of lenders offer FHA loans, including streamlines. Here are some of Bankrate’s picks for best FHA lenders.
  3. Prepare for the application. Although you won’t need to provide as many documents for an FHA streamline refinance, you’ll still need to furnish some details about your mortgage and financial situation. This includes information like your current mortgage statement and homeowners insurance policy.

FHA streamline refinance FAQ

  • There are two FHA streamline refinance options: credit-qualifying and non-credit qualifying. Both make refinancing your FHA loan a more seamless process, but the latter doesn’t typically require an appraisal, credit check or income verification.
  • All new forms of debt appear on your credit report, including new mortgages. If you apply for a credit-qualifying FHA streamline refinance, the lender will do a hard credit pull that could lower your credit score for a short period.
  • You can do an FHA streamline refinance more than once, provided you meet the program’s guidelines to qualify for a new loan each time. This includes the waiting period and net tangible benefit rules.