- An FHA streamline refinance lets you refinance into another FHA mortgage without an appraisal.
- You may not need to show your credit score, debt-to-income ratio, or income information.
- You must have closed on your initial mortgage six months ago and be current on payments to qualify.
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An FHA streamline refinance is a type of refinance for people who already have an FHA mortgage. You refinance from one FHA loan into another.
It’s called a “streamline” refinance because it’s a quicker process than with most types of refinances. You don’t need to have the home appraised again, which saves you time and money. You may not need to show proof of income or employment, or go through a credit check.
You don’t have to go through the same lender you used for your initial FHA mortgage. You can shop around for the lender offering the best rates and lowest fees.
You can refinance into either a 30-year or 15-year term. If your initial FHA mortgage had a 30-year term, you can’t refinance into a 15-year term. But you can refinance from a 15-year term into a 30-year term to get lower monthly payments. You can choose between a fixed-rate mortgage and an adjustable-rate mortgage.
There are two types of FHA streamline refinances: credit qualifying and non-credit qualifying.
With a credit qualifying refinance, the lender will evaluate your credit score, debt-to-income ratio, employment, and income before offering you terms for the new mortgage. A non-credit qualifying refinance doesn’t require a lender to look at these factors.
A non-credit qualifying refinance is obviously the faster, easier choice. But you may need to go through a credit qualifying refinance if you’re in a unique situation. For instance, maybe you need to remove someone’s name from the mortgage. Or refinancing would increase your payments significantly so the lender needs to see whether you’re at risk for default.
You also may decide to take the credit qualifying route if your finances have drastically improved since you took out your initial mortgage. This way, you can land an even better interest rate.
Not everyone is eligible for a streamline refinance. You’ll need to meet the following criteria:
- Have an FHA mortgage. An FHA streamline refinance is only available to those who already have an FHA mortgage. You can’t use it to refinance a different type of mortgage into an FHA loan.
- Meet time requirements. You must have already had your initial FHA mortgage for six months or longer. A minimum 210 days should have passed since you bought your home or since you refinanced into your last FHA mortgage.
- Be up-to-date on payments. You can’t be in delinquency. You must be making mortgage payments on time, especially in the last few months.
- Net tangible benefit. The FHA requires that a streamline finance would financially benefit you. The exact rules depend on several factors, but in general, you’ll need to get a lower rate to qualify. Switching from an ARM to a fixed-rate mortgage is also considered a net tangible benefit, because predictable fixed rates can make it easier for you to stick to a budget and stay current on your mortgage payments.
As with any big financial decision, there are pros and cons to applying for an FHA streamline refinance. Consider the following factors:
- Easy to qualify. Unlike with some types of refinancing, you don’t need to have a certain amount of equity in your home to be eligible. If you get a non-credit qualifying streamline refinance, you don’t have to provide proof of income or employment. So if you’ve lost work, you could still be eligible to refinance. The lender also may not need to check your credit score or debt-to-income ratio.
- No appraisal. The FHA doesn’t require a new appraisal for a streamline refinance, which saves you time and money. This is a huge perk if your home has decreased in value.
- Save money. Thanks to the “net tangible benefit” rule, a streamline refinance has to benefit you financially. So you could lock in a lower rate and/or lower monthly payments.
- Closing costs. As with your initial mortgage, you’ll need to pay closing costs when you close on your new mortgage. (This is the case with all refinances, not just FHA streamline refinances.) Closing costs typically come to thousands of dollars. There are no-closing-cost options, but the lender makes up the difference by charging you a higher interest rate. With an FHA streamline refinance, you can’t roll the closing costs into your mortgage payments by taking out a larger loan.
- Mortgage insurance. You’ll pay a 1.75% insurance premium at closing, plus an annual premium. You’ll always pay mortgage insurance with an FHA loan — it isn’t something you can cancel like with a conventional mortgage. If you want to cancel mortgage insurance to save money, consider refinancing into a conventional mortgage instead.
- No cash-out option. You can’t use an FHA streamline refinance as a cash-out refinance. You can only receive up to $500 in the refinancing process, which you may use to help with closing costs.
Maybe you know you want to refinance your FHA mortgage, but you aren’t positive a streamline refinance is the right fit. You do have other options:
FHA simple refinance
An FHA simple refinance is similar to a streamline refinance. You’ll refinance into another FHA mortgage and choose between a fixed and adjustable rate.
The difference is that unlike a streamline finance, an FHA simple refinance requires you to go through the appraisal process again, and you’ll need to provide your credit score, debt-to-income ratio, and employment and income information.
A simple refinance could be the better fit if you’ve gained a good bit of equity in your home since you bought it, and if the rest of your finances have improved. A new appraisal and look at your finances could snag you a better rate.
Maybe you want to refinance your FHA mortgage into a conventional mortgage, which is what you may think of as a “regular mortgage.”
A big upside to doing this is that if you have at least 20% equity in your home, switching to a conventional mortgage lets you get rid of mortgage insurance, which could save you money.
It’s harder to qualify for a conventional mortgage than an FHA streamline refinance, though. You’ll probably need at least a 620 credit score, 36% debt-to-income ratio, and 20% equity in your home.
FHA cash-out refinance
Have you gained equity in your home since you bought it? You could do an FHA cash-out refinance. With a cash-out refinance, you take out another FHA loan larger than the amount you still owe, and you receive a portion of your home’s gained value in cash. Then you can use the money however you see fit.
Your decision about how to refinance your loan will probably come down to the state of your finances and what your goals are. If you haven’t gained much equity in your home and/or your finances are great, an FHA streamline refinance could be the best fit. An as an added bonus, the process is faster and easier than with most types of refinances.
Laura Grace Tarpley is the associate editor of banking and mortgages at Personal Finance Insider, covering mortgages, refinancing, bank accounts, and bank reviews. She is also a Certified Educator in Personal Finance (CEPF). Over her four years of covering personal finance, she has written extensively about ways to save, invest, and navigate loans.
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