FHA Streamline Loans

The FHA streamline refinance program helps current FHA homeowners lower their interest rate and monthly payment — it’s a fast and cost-effective way to refinance with lenient documentation requirements and credit standards.

To further entice FHA mortgage holders, the FHA also offers upfront mortgage insurance premium (upfront MIP) refunds. This refund allows a portion of the premium paid when the original FHA loan closed to be applied to the upfront MIP of the new FHA streamline refinance loan.

Why Streamline?

Here are a few of the biggest benefits to the FHA streamline program:

Who qualifies for an FHA streamline refinance?

The FHA streamline is available to homeowners who currently have an FHA loan with a good payment history. Homes that have lost value and are now underwater are eligible too.

The most important qualification though, is that borrowers must receive a benefit from refinancing. Lenders can approve an FHA loan when the payment will drop by at least 5 percent. This is a built-in protection for refinance applicants. See the Net Tangible Benefit section below.

FHA refinance rates

Current FHA rates are some of the lowest in history. According to Ellie Mae’s January 2019 Origination Report, the average 30-year rate on FHA loans decreased to 5.05 percent. This keeps FHA rates on par with conventional loan rates at 5.04 percent.

The refinance interest rate you’ll qualify for will depend on factors like your credit score, interest rate type, and loan type. You’ll have to speak with lender to determine the specific FHA refinance rate you’re eligible for.

FHA loan payment history requirements

To qualify for an FHA streamline refinance loan, you must show a history of on-time mortgage payments. If you have had some late payments, you are not automatically disqualified. You can rebuild your history going forward and qualify 12 months after your second most recent late payment.

FHA loan payment requirements:

  • If you mortgage is less than 12 months old, then you must have made all mortgage payments on time.

  • If your mortgage is 12 or more months old, then you are permitted no more than one payment that was 30+ days late. The three months’ payments prior to the loan application must have been made on time.

FHA streamline waiting periods

If you’ve just closed on a loan, then you are not be eligible for an FHA streamline refinance — there is a waiting period between when you first closed and when you can refinance.

FHA streamline refinance waiting period requirements:

  • You have made at least six on-time payments on your current FHA mortgage

  • It’s been at least six months since your first payment due date

  • 210 days have passed since the day your current mortgage closed in escrow

For example: If your current FHA loan closed on November 28, 2018, then your first mortgage payment was due on January 1, 2019. You can refinance as soon as July 1, 2019 — 210+ days after closing and six months after your first payment.

Closing costs for FHA streamline

Closing costs on an FHA streamline are generally the same as with other mortgages, except that there is no appraisal fee (if you opt not to get an appraisal).

Generally, you can expect to pay between $1,000 and $5,000 in FHA streamline closing costs, but this amount could be higher or lower depending on your loan amount and other factors. If you have equity in your home, then with an appraisal you may be able to wrap closing costs into the new loan amount.

Appraisals

There are essentially two types of streamline refinances — those with an appraisal and those without. The vast majority of people will opt for the no-appraisal option, simply because the process is quicker, cheaper, and no equity is required.

Why would someone get an appraisal on an FHA streamline? Because only streamlines with appraisals can include closing costs in the new loan amount. Otherwise, closing costs have to be paid out of pocket.

If you order an appraisal, make sure you have enough equity in the home to cover the existing balance of the loan, closing costs, and any interest due.

Maximum FHA streamline refinance loan amount

If you opt for a no-appraisal FHA streamline, the loan amount may include:

  • The current principal balance

  • Up to one month’s worth of interest due

  • The new upfront mortgage insurance fee

  • Subtract out the upfront mortgage insurance refund, if applicable (usually applies only if the FHA loan was originated less than 3 years ago)

If you don’t you have equity in your property, it’s best not to obtain an appraisal.

FHA streamline document checklist

Here is a list of documents your lender may need to process your FHA streamline:

  • Mortgage note from your current FHA loan, which shows your current interest rate and loan type

  • Current mortgage statement

  • Final settlement statement (final HUD-1) or Deed of Trust with the FHA case number of your current loan

  • Contact information for your employer’s HR department — lenders need to verify your employment not your actual income

  • Two months of bank statements including all pages (even blank pages) that show you have enough funds to pay for any out-of-pocket costs associated with the loan

  • Contact information for your homeowner’s insurance agent to obtain current proof of insurance

 

Also, make your next month’s mortgage payment as soon as possible. This allows your lender to obtain proof that your FHA mortgage is current. We may require more or less than the items listed above depending on specific conditions.

Mortgage insurance premiums

FHA reduced its upfront and monthly mortgage insurance (MI) premiums for some borrowers if your loan was endorsed by FHA on or before May 31, 2009 — a reduction of 0.01% upfront MI and 0.55% monthly MI. (Endorsed means that your loan was closed and that the FHA insured your loan.) In most cases, FHA loans need to be closed before this date to be endorsed by FHA in time. If you closed your loan in May 2009, your lender can pull a “case query” with the FHA to verify endorsement.

If your loan was not endorsed after May 31, 2009, then mortgage insurance premiums are 1.75% upfront and usually 0.85% of the loan amount per year, paid each month in 12 equal installments.

Mortgage insurance refunds

You may be entitled to a refund of the upfront mortgage insurance you paid when you opened your existing FHA mortgage. The refund amount is determined by how long ago you opened your mortgage, and when the new FHA streamline closes. Usually, refunds are only available if the FHA loan is refinanced with another FHA loan within the first 3 years.

Each month, the refund amount decreases. So if you refinance within 12 months, you may be refunded as much as 60% of your original upfront mortgage insurance. But if you refinance after 30 months, you will only receive about 20%. 

 

Net Tangible Benefit

A FHA streamline must result in a Net Tangible Benefit (NTB) for the borrower — the refinance must improve the borrower’s financial position as defined by the FHA. Generally, NTB is defined as reducing the borrower’s “combined rate” by at least 0.5%.

For example, a homeowner has a current interest rate of 4.5% and an insurance premium of 1.35% for a combined rate of 5.85%. If the homeowner refinances into a new 4% FHA loan with an insurance premium of 0.85%, then the new combined rate of 4.85% is 0.5% reduction making the refinance eligible.

The 0.5% “combine rate” reduction rule applies if you’re refinancing a fixed rate mortgage into another fixed. If you’re refinancing into (or, out of) a one-year ARM or Hybrid ARM (3-, 5-, 7-, or 10-year ARM), then there are different NTB requirements.

Net Tangible Benefit Combined Rate Requirements

Current Loan TypeRefinance Loan TypeNet Tangible Benefit Requirements

Fixed rateFixed rateDecrease at least 0.5%

Fixed rateOne-year ARMDecrease at least 2%

Fixed rateHybrid ARMDecrease at least 2%

Any ARM w/ less than 15 months in fixed periodFixed rateIncrease no more than 2%

Any ARM w/ less than 15 months in fixed periodOne-year ARMDecrease at least 1%

Any ARM w/ less than 15 months in fixed periodHybrid ARMDecrease at least 1%

Any ARM w/ greater than 15 months in fixed periodFixed rateIncrease no more than 2%

Any ARM w/ greater than 15 months in fixed periodOne-year ARMDecrease at least 2%

Any ARM w/ greater than 15 months in fixed periodHybrid ARMDecrease at least 1%

Is cash back allowed on an FHA streamline?

No cash back to the borrower is permitted to be intentionally built into the FHA streamline transaction. FHA does permit a small amount of cash, usually less than $500, to go back to the borrower. Cash back can only be as a result of incidental changes in closing costs calculations, which happens often with all mortgages. Some lenders limit the amount to $250 or less.

Minimum credit score for FHA streamline refinance

FHA does not require a credit report to be pulled. However, most, if not all lenders will require a credit report.

A standard “benchmark” minimum credit score for the FHA streamline program is 640. However, some lenders will allow a score of 620 or even 600. If you are denied, shop around. You might find a lender who approves your application.

Amount of money needed to qualify for FHA streamline refinance

You will need to provide 60 days of bank statements showing enough money to cover any out-of-pocket closing costs. Your loan officer will work up an estimate of total funds due, which should give you a general idea about how much money you need in your accounts.

This estimated out-of-pocket amount might increase through the course of the loan. Be prepared to provide updated statements or additional statements to prove you have the increased amount.

An additional note about bank statements: provide all pages, even blank ones, to your lender. Make sure your name, address, and account number appear on your statement too. Online bank printouts often don’t include your personal information, so you’ll need the mailed version or the PDF version of your full statement.

FHA streamline loans and condominiums

Many condominiums have lost their FHA eligibility over the past few years. However, FHA streamlines are available on condo complexes that were approved at the initial opening of the loan, but have since lost their approval.

The exception is when an appraisal is needed for the FHA streamline. In this case, the condo would need to be FHA approved currently. For more information about FHA and condos, see our blog post about this subject.

Can I refinance my second home or investment property with FHA streamline?

In most cases, FHA allows second homes and investment properties to be refinanced with a streamline. As with all streamline refinances, the property has to have an FHA loan on it currently.

If the payment is increasing or the new loan will be an ARM, the streamline will not be permitted on second homes or investment properties.

Can I add or remove borrowers with an FHA streamline?

Borrowers can generally be added to the title without income and asset review. FHA permits a person to be removed from the loan, as long as one of the original borrowers remains on the loan. Attempting to “assign” the loan to someone else entirely using an FHA streamline is not permitted.

Can I refinance my 30-year loan to a 15 year using an FHA streamline? 

No. Reducing your loan term is not permitted with FHA streamlines. You must use a regular FHA refinance. An appraisal, as well as full income, asset, and credit documents will be needed.

Can I refinance my 15-year loan to a 30 year using an FHA streamline? 

Yes. Your combined rate must decrease by 0.50%. See the Net Tangible Benefit section.

Can I refinance my FHA ARM to another FHA ARM?

You may use an FHA streamline to refinance an adjustable rate mortgage (ARM) to another ARM. This can only be done on a primary residence. No second homes or investment properties will be permitted for ARM-to-ARM refinancing.

Can I refinance my ARM to a fixed rate?

Yes. However, there are additional requirements when refinancing into and out of a one-year ARM. See the Net Tangible Benefit section.

Can I refinance my fixed rate to an ARM?

Yes. See the Net Tangible Benefit section.

Can I refinance my completed 203k rehab loan with an FHA streamline?

Yes. If all the work is complete as evidenced by:

  • A certificate of completion

  • A final release of the rehabilitation escrow account

  • The previous lender’s completion of the 203k closeout process in FHA’s website (called FHA connection)

FHA permits this type of refinance to be completed without an appraisal. However, your lender may require one. Speak to one of our professionals to find out what will be required in your situation.

Can I use an FHA streamline if my home is in bad shape?

The FHA does not require repairs on a home that is in sub-par condition as long as there is no appraisal required for the transaction. If you opt for an appraisal (or, your lender requires one), then you will be responsible for completing those repairs before before approval.

The FHA streamline refinance is a great way for current FHA homeowners to lower their interest rate and monthly payment. And, with lenient credit standards and documentation requirements it can be the fastest and most cost effective options to refinance an FHA loan.

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