Do you want to refinance your FHA loan to get a lower rate and lower your monthly payment?
You can with an FHA streamline refinance..
In fact, homeowners save $150-$250 on their monthly mortgage payment.
In this article we are going to discuss all the benefits and requirements of the FHA streamline refinance program.
Rate Search: Check Current FHA streamline refinance Rates
FHA Streamline Refinance Infographic
What is an FHA streamline Refinance?
The FHA streamline refinance is available to homeowners with an FHA loan who want to lower their mortgage rate and payment.
They do not require a credit check, home appraisal, income verification, or any money out of pocket.
And, as the name suggests, the process is streamlined requiring less paperwork and conditions for a speedy refinance.
Homeowners can get a streamline refinance to take advantage of todays low interest rates, and lower their FHA MIP (mortgage insurance premium). The average borrower saves between $150-$250 a month.
With mortgage rates on the rise in 2017 now may be the best time to looking into a refinance.
Please visit the HUD website for more information.
- You must currently have an FHA-insured mortgage
- Past the 210 day waiting period
- Current on the loan payments
- Refinance must produce a net tangible benefit. This varies depending on the type of loan and interest rates. Basically, the refinance needs to lower your interest rate or payment, otherwise it would be pointless.
- FICO score of 620 or higher
FHA 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 rate
- Lower your mortgage insurance rate
- No loan-to-value limits (You can be underwater on your mortgage)
FHA Streamline Requirements
To qualify 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 the time you closed on or refinanced your FHA loan in order to be eligible.
Since there is no income verification, no W2’s or pay check stubs needed.
You can qualify if you have a low income, or even being unemployed will not matter when you get an FHA streamline refinance.
- Bust be current on your mortgage
- No more than 1 late payment in past 12 months (none in last 6 months)
- There is a 210 day waiting period to apply for a streamline refinance after closing on your home
- You do not have to have any equity in your home
- No appraisal required
- No credit check or income documents
- Refinancing must save the borrower money
Homeowners with an FHA home loan are able to lower their monthly mortgage payments with an FHA streamline refinance.
The great news is that no appraisal is required. No income documents are needs and credit score requirements are low.
One of the biggest draw backs of an FHA streamline refinancing are the closing costs.
FHA will not allow you to roll the closing costs into the mortgage loan, you must pay them upfront.
Closing costs on a FHA streamline refinance can range from $1500 to as much as $6000.
The amount varies due to the size of the loan and the lender you use.
FHA Streamline Waiting Period
In 2015 the Federal Housing Administration announced that the mortgage insurance premiums were dropping from 1.25% to 0.85%.
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.
You must of 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 been 210 days since your FHA loan closed
Streamline Refinance Minimum Credit Score Requirement
The Federal Housing Administration does not require lenders to check your credit for a streamline refinance.
However most lenders will pull your credit history and require between a 600-640 credit score to qualify.
If one lender denies your loan, you should keep on trying different lenders until you find a lender that is able to approve you.
You can be underwater on your mortgage
There is no maximum loan to value ratio to qualify.
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 which is great for borrowers with little to no equity to refinance their mortgage.
When Refinancing your loan makes sense
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 fee percentage is higher than the current MIP rate of 0.85%
- If your home’s value has decreased
- You are struggling making your mortgage payments
- You are underwater on your home
No appraisals are required with an FHA streamline refinance. Instead, FHA lenders will use the value of your home at the time of closing.
So even if your home is worth less than when you originally purchased it, it will not matter.
Even if you are upside down on your home and owe more money than it’s worth you are still eligible.
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 increase annually, your payment will also increase each year.
FHA mortgage rates are usually lower than a conventional loan.
How to apply for an FHA Streamline Refinance
You should 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.
VA and USDA Streamline Refinance
Homeowners that have a VA or USDA loan can also qualify for a streamline refinance. You can read more about a VA streamline refinance here.
Lower your mortgage insurance payment (MIP)
Many FHA borrowers are required to pay MIP for the life of the loan with an FHA-insured mortgage. The current MIP fee is 0.85% if you closed on your loan before the MIP change you can refinance to pay the lower mortgage insurance percentage.
- A loan-to-value ratio less than 90 percent is required to pay MIP for the first 11 years of the loan.
- 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.
In order 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.
Refinancing from an FHA loan to a Conventional loan
There are circumstances that some borrowers may find that a streamline refinance may not be the best option available.
If you have a LTV of 80% or less than if you refinance your FHA loan into a conventional loan. With Freddie Mac or Fannie Mae, you would not be required to pay MIP or PMI.
There is a larger upfront cost when refinancing into a conventional loan.
Typically the closing costs are between 2%-5%, if your loan amount is $200,000 and your closing costs are 3%, that’s $6,000 upfront. However, over the life of the loan you will save more than $6,000 by avoiding PMI.
Conventional loans do have much more stringent requirements than FHA streamline loans do. For one, you will need a minimum credit score of 640.
You will have to be able to proof your income using W2’s, tax returns and pay check stubs. If you ‘re able to meet the requirements, a conventional loan will be a cheaper option than FHA.
Current FHA upfront mortgage insurance premium MIP rates
The current upfront mortgage insurance premium is 1.75 basis points, or 1.75%. This is a fee you will pay upfront, however you are not required to pay in cash, it can be added into your loan.
You can get a refund on the original upfront MIP payment if it has been less than 3 years since you original got the FHA loan.
FHA MIP Refund
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.
FHA Cash-Out Refinance
There is a second type of FHA refinance loan option where you can refinance your FHA loan and cash cash back.
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 refinance loans will require a new home appraisal.
A new credit check and income verification, you also need to meet FHA debt-to-income ratio guidelines.
An FHA streamline refinance loan can lower your monthly mortgage payment and save you thousands over the life of your mortgage.
This is due to lower interest rates and mortgage insurance savings means more money in your pocket.
Because FHA streamline refinances offer many benefits and they are very easy to qualify for.
Getting a streamline refinance is a no brainer that every homeowner with an FHA loan should apply for.
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.
You can find more information about streamline refinance programs on the HUD website.
Rate Search: See if you qualify for an FHA streamline refinance
Randall has over 15 years of experience in the mortgage and credit industries. He spends a chunk of time helping consumers understand their credit, advise them on how to increase their credit, and lending his mortgage expertise to help them find the right type of loan. Randall lives in Dallas, Texas with his two sons.