Access to the Federal Housing Administration’s Streamline Refinance program is one of the benefits of having an FHA loan. Under this program, borrowers with an FHA-insured mortgage may refinance their current FHA loan to one with a lower new interest rate or from, say, an adjustable-rate to a fixed-rate mortgage.

Streamline Refinance loans can be easier to qualify for and require less documentation and underwriting than other home refinancing options. Here’s what FHA loan borrowers need to know about the Streamline Refinance program.

Learn more: The different types of FHA loans

In this article:

• What is an FHA Streamline Refinance?

• Eligibility requirements

• Pros and cons

• FAQs

What is an FHA Streamline Refinance?

Refinancing your mortgage involves taking out a new home loan to pay off your current mortgage. A mortgage refinance can offer numerous benefits, such as lowering your interest rate, reducing your monthly mortgage payment, changing your loan type, or adjusting your payoff date.

But standard rate-and-term refinancing has requirements that can be difficult for borrowers to meet. These include the need for a property appraisal (which the homeowner must pay for), loan-to-value ratio (LTV) limits, and debt-to-income ratio (DTI) limits for the borrower.

The FHA Streamline Refinance makes refinancing much easier, and there are fewer requirements. Streamline Refinancing will allow any FHA borrower to “streamline” the process of refinancing their mortgage with an FHA-approved lender. Specifically, this program does not require a home appraisal. Mortgage lenders are permitted to make loans without factoring in the home’s LTV or DTI ratios. You also aren’t required to provide your credit score in most cases.

There is no such thing as a cash-out FHA Streamline Refinance, though. The program is intended to help borrowers afford their monthly mortgage payments, and the FHA restricts you to no more than $500 cash out through a Streamline Refinance. You may prefer an FHA cash-out refinance to tap into more of your home equity.

Learn more: What is a cash-out refinance?

Credit qualifying vs. non-credit qualifying FHA Streamline Refinances

There are two types of refinancing loans through the FHA Streamline program: credit qualifying and non-credit qualifying refinances.

A credit qualifying Streamline Refinance is more like standard mortgage refinancing. If you are applying for a credit qualifying FHA Streamline Refinance, your lender must verify your income, check your credit score and report, and assess your debt-to-income ratio.

The non-credit qualifying FHA Streamline Refinance does not have these requirements. Your lender can help you refinance your existing FHA loan without verifying your income, pulling your credit report, or calculating your DTI ratio. However, even though the FHA does not require a credit report for a Streamline Refinance, the lender may require it.

Since non-credit qualifying FHA Streamline Refinance loans do not require verification of your income or credit, these refinances generally have a higher interest rate than credit-qualifying loans.

Read more: How to refinance a mortgage with bad credit

Eligibility requirements for an FHA Streamline Refinance

Not all borrowers qualify for this refinancing program. While eligibility requirements can vary between FHA lenders, you must meet the following minimum criteria set by the FHA to be eligible:

• You are refinancing an FHA-insured mortgage. This program is restricted to borrowers with existing FHA-backed mortgages.

• You must receive a “net tangible benefit.” To qualify for this program, the FHA requires the refinance to result in a “net tangible benefit” for the borrower, which is defined as one of the following outcomes:

  • Reducing your mortgage payment by at least 5%, including your mortgage principal, mortgage interest, and FHA mortgage insurance premium (MIP).

  • Changing your loan from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, with a fixed interest rate no higher than two percentage points above your current ARM rate.

  • Changing your fixed-rate loan to a one-year ARM, as long as the ARM interest rate is at least two percentage points lower than your fixed interest rate.

  • Changing your ARM to another ARM that reduces your mortgage payment (including principal, interest, and MIP) by at least 5%.

• You have made consistent, on-time payments. Borrowers must have at least six months of on-time monthly mortgage payments, although the FHA will overlook one single late payment in the past six months.

• You must pay mortgage insurance premiums (MIPs). Your FHA Streamline Refinance, just like your FHA-backed mortgage loan, requires you to pay MIP as a condition of the loan.

• You cannot finance closing costs: You must pay closing costs on the closing day rather than rolling them into your mortgage principal as you would with a no-closing-cost refinance.

Dig deeper: How to remove FHA mortgage insurance and lower your payments

Pros and cons of an FHA Streamline Refinance

An FHA Streamline Refinance has several benefits and drawbacks. Borrowers thinking of applying for this kind of refinance should consider the following pros and cons:

Pros

• Can lower your monthly mortgage payment

• Does not require a home appraisal, income verification, or a credit check

• No LTV ratio requirement, meaning you can refinance even if you owe more than the home is worth

• Faster closing than standard refinancing

Cons

• Only FHA borrowers can apply

• Must receive a “net tangible benefit” to qualify

• Mortgage insurance premiums are required

• Cannot roll FHA loan closing costs into your mortgage principal

• Cash out from the refinance is limited to no more than $500

Read more: Want to refinance your FHA loan? Here are 4 options.

FHA Streamline Refinance FAQs

How soon can you refinance a FHA loan?

You may wonder how soon you can refinance your mortgage after getting your first FHA loan. To apply for an FHA Streamline Refinance, at least 210 days must have passed since the closing date of your existing FHA mortgage, and at least six months must have passed since the first payment due date. Additionally, you must have made at least six payments on your FHA-backed mortgage to qualify.

Does an FHA Streamline Refinance require an appraisal?

No, there is no requirement for a home appraisal with the FHA Streamline Refinance program.

How much are the closing costs on an FHA Streamline Refinance?

Closing costs on FHA Streamline Refinance loans are generally about the same as closing costs on any other mortgage product: between 2% and 6% of the mortgage amount. The FHA does not allow borrowers to roll closing costs into the new loan, which means you must pay these costs out of pocket on closing day. However, some lenders may offer “no-cost” FHA Streamline Refinance loans where the lender pays your closing costs in exchange for a higher interest rate.

This article was edited by Laura Grace Tarpley