An FHA streamline refinance the average FHA borrower’s monthly payment between $150-$250 on their mortgage payment.
This article takes an in-depth look at the eligibility requirements and guidelines for the FHA streamline refinance program.
What is an FHA Streamline Refinance?
An FHA streamline refinance replaces your existing FHA mortgage loan with a new loan with better loan terms. Streamline refinancing is available on all government-backed mortgages such as FHA, VA, and USDA loans.
As the name suggests, the process is streamlined, requiring less paperwork and conditions for a speedy refinance. They do not require a credit check, home appraisal, income verification, or money out of pocket.
Homeowners can take advantage of today’s low-interest rates and lower their mortgage insurance premium (MIP) with a streamline refinance. The average borrower saves between $150-$250 a month.
Please visit the HUD website for more information.
FHA Streamline Requirements & Guidelines
2020 FHA Streamline Refinance Requirements
• You must currently have an FHA-insured mortgage
• 210 day waiting period since closing
• No late mortgage payments in the past 12 months
• Refinancing must produce a net tangible benefit
• Available for primary residence only
To be eligible, you must have an FHA home loan and have not had more than one late payment in the last year if the mortgage is at least 1 year old.
If you received your mortgage within the last 12 months, no late payments are permitted. There is a 210 day waiting period from when you closed on or refinanced your FHA loan to be eligible.
Streamline Refinance Program Benefits
• A home appraisal is not required
• Lower your monthly payment
• No income verification
• Minimal documentation required
• Quick and easy process
• Lower your interest and MIP rates
• Lower your mortgage insurance rate
• No loan-to-value limits (You can be underwater on your mortgage)
- 580-620 credit score
- No late mortgage payments in the last six months
The Federal Housing Administration does not require lenders to perform a credit check to be eligible for streamline refinancing. However, most lenders set their own minimum credit requirements and check your credit, and require a 580-620 credit score to qualify.
If one lender denies your loan, you should keep on trying different lenders until you find a lender that can approve you.
- No maximum LTV ratio (can be underwater)
If you owe more on your mortgage than your home is worth (loan-to-value ratio above 100%), you still may qualify for an FHA streamline refinance that is great for borrowers with little to no equity refinance their mortgage.
- 43%-50% maximum debt-to-income ratio
Your debt-to-income ratio (DTI) is the amount of your monthly income that goes towards your debt obligations such as auto loans, personal loans, and credit cards.
The maximum DTI ratio for FHA loans is between 43%-50%. DTI ratios above 43% will need to be approved by an underwriter.
- 2%-5% of the loan amount
The one drawback of using a streamline refinance is the closing costs, which can range between 2%-5% of the loan amount. The amount varies due to the size of the loan and the lender you use. It’s a good idea to get loan quotes from at least three lenders to compare lender fees and interest rates.
FHA Streamline Refinance Waiting Period
Homeowners with an FHA loan are now able to take advantage of the new lower MIP fee. There is a 210 day waiting period to qualify for the FHA refinance program.
In 2015 the Federal Housing Administration announced that the mortgage insurance premiums dropped from 1.25% to 0.85%.
You must have made at least 6 monthly mortgage payments on your FHA loan to be eligible.
- Must make at least 6 mortgage payments on your FHA loan
- cannot refinance before the 6 month anniversary of your first mortgage payment
- Can be 210 days since your FHA loan closed
Streamline Refinance Loan Alternatives
FHA Cash-Out Refinance
- Minimum 620 credit score
- Borrow up to 80% of the loan-to-value ratio
There is a second type of FHA refinance loan option to refinance your FHA loan and cashback. If you have equity built up in your home, you can cash out up to 85% of the equity into money in your pocket.
FHA cash-out refinances loans require a home appraisal, credit check, income verification, and a maximum 50% DTI ratio.
FHA to Conventional Refinance
- Drop MIP with LTV ratio <80%
- 620 credit score required
- Maximum DTI ratio of 43%
FHA borrowers with more than 20% equity can drop MIP by refinancing their FHA loan and into a conventional loan. Conventional loans do not require PMI on mortgages with an LTV ratio of <80%.
Conventional loans do have more stringent requirements than FHA. For one, you will need a minimum credit score of 640 and a maximum 43% debt-to-income ratio.
You will have to prove your income using W2’s, tax returns, and paycheck stubs. If you’re able to meet the requirements, a conventional loan will be a cheaper option than FHA.
FHA Streamline Refinance to Lower Mortgage Insurance Premiums
Many FHA borrowers are required to pay MIP for the life of the loan with an FHA-insured mortgage. The MIP fee would be 0.85%; if you closed on your loan before the MIP change, you could refinance to pay the lower mortgage insurance percentage.
- A loan-to-value ratio of less than 90 percent must pay MIP for the first 11 years of the loan.
- A loan-to-value ratio greater than 90 percent will pay MIP for the life of the loan.
Note: The same rules apply to 15 yr fixed rate and 30 yr fixed-rate mortgages.
If you have an FHA loan and have more than a 20% equity stake in your property.
You can avoid paying PMI by refinancing into a conventional loan. Conventional loans do not require PMI on mortgages with an LTV ratio of 78% or less.
To cancel MIP on your FHA loan, you will need a loan-to-value ratio (LTV Ratio) of 78% or lower. And you’ll need to refinance out of your FHA loan and into a conventional loan.
Upfront Mortgage Insurance Premium Refund
The current upfront mortgage insurance premium is 1.75 basis points or 1.75%. This is a fee you will pay upfront; however, you must not pay in cash; it can be added to your loan.
You can get a refund on the original upfront MIP payment if it has been less than 3 years since you originally got the FHA loan.
If you refinance your FHA loan within 36 months of closing, you may be due a refund on the portion of up-front MIP paid. The MIP refund amount will depend on how long you have had your FHA mortgage.
You’ll need to speak to an FHA lender about how much of a refund you may be due.
Fixed-Rate and Adjustable-Rate Mortgages
When you refinance with the FHA streamline program, you’re able to choose between a 15 year or 30-year fixed-rate mortgage loan or an adjustable-rate mortgage loan.
- A fixed-rate loan will have the same monthly payment, and the rate will never increase.
- An adjustable-rate loan will be lower than a fixed rate for a short initial period, usually 5 years. Then the rate will change periodically based on the prime rate.
When Streamline Refinancing is a Good Idea
When considering if a refinance makes sense, do any of these apply to you?
If so, a refinance is definitely worth looking into.
- If your interest rate is higher than the current rates available
- Your MIP is higher than the current FHA MIP rate of 0.85%
- If your home’s value has decreased
- You are struggling to make your mortgage payments.
- You are underwater on your home
How to Apply for an FHA Streamline Refinance
It would be best to shop a couple of lenders to ensure you get the lowest fees and rate available. You can check with the current bank you have your mortgage with.
However, it’s advised to get quotes from 3 to 4 different FHA-approved lenders to ensure you’re getting the best deal on your streamline mortgage.
FHA Streamline Refinance Infographic
The Bottom Line
FHA streamline refinancing is a quick and easy way for FHA borrowers to get a new FHA loan with a lower interest rate and better loan terms.
- Lower your mortgage rate and monthly payment
- No income verification
- Low credit score requirements
- Limited documentation needed
- 210 waiting day period
If you’re concerned about the time and effort it may take to refinance, you shouldn’t be.
Very few documents are needed, and the refinance can go through very quickly.
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