If you currently have an FHA loan and your goal is to decrease your monthly mortgage payments, you might want to consider an FHA Streamline Refinance. This type of refinance is intended to make the process as quick and easy as possible for those with an FHA loan.
Learning what an FHA Streamline is, how it works, and how its benefits can help you determine if its the right option for you.
A Streamline FHA refinance is a special type of refinance available to borrowers who already have an FHA-insured mortgage It allows you to refinance your existing FHA loan into a new FHA loan with lower interest rates and potentially a lower monthly payment,
The main benefits of a Streamline FHA refinance include
Lower Interest Rates
The primary reason for doing a Streamline refinance is to reduce your interest rate. Interest rates fluctuate over time, so even if you already have a low rate, you may be able to lower it further with a Streamline FHA refinance. This can help reduce your monthly mortgage payment.
Lower Monthly Payments
In addition to getting a lower interest rate, you may also be able to reduce the term of your loan from 30 years to 15 years with a Streamline FHA refinance. Shortening your loan term means you’ll pay off your mortgage faster and potentially save thousands in interest costs over the life of the loan.
No Home Appraisal Required
Streamline FHA refinances do not require a full home appraisal in most cases. The loan amount is determined by your outstanding loan balance, not your home value. This helps expedite the refinance process.
Limited Documentation
For a Streamline FHA refinance, limited documentation is required compared to a conventional “cash-out” refinance. Income verification is usually not needed. This simplified documentation can make for a much faster underwriting process.
Cash Out Limitations
While Streamline FHA refinances offer many advantages, you can only take out a maximum of $500 cash as part of the transaction. So it’s not a “cash-out” refinance. The focus is on lowering your rate and payment.
Eligibility Requirements
To qualify for a Streamline FHA refinance, there are a few requirements:
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You must have an existing FHA loan on the property. Conventional loans do not qualify.
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You must occupy the property as your primary residence. Non-owner occupied properties do not qualify.
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Your current FHA loan must be current – you cannot be behind on payments.
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You must have made at least 6 payments on your current FHA loan.
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It must have been at least 210 days since you closed on your existing FHA loan.
As long as you meet these requirements, you may be able to streamline your refinance, even if you owe more than your home is currently worth. The focus is on your outstanding loan balance rather than your home’s value or loan-to-value ratio.
Streamline with Appraisal vs without Appraisal
There are two main types of Streamline FHA refinances – with an appraisal, and without:
Streamline FHA Refinance With Appraisal
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An appraisal is required if your new loan amount will exceed your original loan amount by more than 1.5%.
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The benefit is you can roll closing costs into the new loan amount.
Streamline FHA Refinance Without Appraisal
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No appraisal is required regardless of the loan amount change.
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You cannot roll closing costs into the loan, so these must be paid upfront.
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The refinance can close faster without waiting on the appraisal.
How much could I save?
The savings with a Streamline FHA refinance depend on your current interest rate and loan details compared to current market rates. But it’s possible to reduce your interest rate by 0.5% or more, which can add up to thousands in interest savings over the loan term.
You can get an estimate of potential savings by using an online mortgage refinance calculator and inputting your current loan details vs. current rates. Your actual savings will depend on the rates and terms you qualify for.
Should I do a Streamline FHA Refinance?
If you have an existing FHA loan and want to lower your rate and payment, a Streamline FHA refinance is often the best option. The limited documentation, no appraisal requirement in most cases, and lenient credit guidelines make it easier to qualify compared to a conventional “cash-out” refinance.
However, you should compare the costs versus potential savings to make sure it makes financial sense for your situation. And shop around with multiple lenders to find the best rates and closing costs.
While Streamline FHA refinancing is a great option for many borrowers, it’s not the only choice. You can also consider switching to a conventional loan once you reach 20% home equity in order to eliminate mortgage insurance.
Bottom Line
A Streamline FHA refinance offers a faster, simpler way for borrowers with existing FHA loans to refinance and lock in a lower interest rate and potentially lower monthly mortgage payment. If you meet the FHA’s eligibility criteria, it can be an excellent option to reduce your housing costs without the hassle of a full documentation refinance.
What is an FHA Streamline refinance?
The FHA Streamline Refinance is a mortgage refinance (or “refi”) product through the Federal Housing Administration (FHA) that can help homeowners with an existing FHA loan to lower their interest rate and reduce their monthly payment. An FHA Streamline can also be used to change your loan type. Specifically, you might be able to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
As the name suggests, an FHA Streamline is a relatively speedy and simplified process. Some borrowers are even able to skip the appraisal before closing.
Will an FHA Streamline refi affect my credit score?
For non-credit qualifying applicants, the FHA Streamline Refinance shouldn’t affect your credit score too much because your lender is considering fewer factors on your credit report.
With the credit-qualifying option, your lender reviews your credit score, credit history and full credit report. This could lower your credit score slightly, but only temporarily.
FHA Streamline Refinance Explained – Lower Rates and Monthly Payments 2023.
FAQ
Is FHA streamline refinance a good idea?
Benefits of a FHA Streamline Refinance
Not only can this save you the cost and hassle of getting an appraisal and worrying about whether it will be high enough, it also may allow eligibility even if your loan is currently under water (i.e. your loan payoff amount is higher than your home’s market value).
Do I have to pay closing costs on an FHA Streamline refinance?
Before you can get lower payments, you need to apply for the FHA-insured Streamline loan, get approved for the loan (with a no-credit check process), then close the deal. As with your original FHA loan, you are required to pay closing costs.
How many times can you streamline an FHA loan?
There’s no limit to how many times you can participate in the FHA Streamline Refinance program. However, keep in mind that each time you refinance, you’ll need to meet the net tangible benefit and mortgage seasoning requirements.
What is the interest rate for FHA streamline refinance?
| Product | Interest Rate | APR |
|---|---|---|
| 30-Year FHA Rate | 7.09% | 7.15% |
| 30-Year Fixed Rate | 6.87% | 6.93% |
| 20-Year Fixed Rate | 6.53% | 6.36% |
| 15-Year Fixed Rate | 6.06% | 6.15% |