An FHA streamline refinance is a type of mortgage refinance offered by FHA approved lenders and insured by the Federal Housing Administration (FHA). FHA streamline refinances are often considered a relatively speedy way for homeowners to refinance their existing FHA mortgages because they may require limited documentation from the borrower and less underwriting requirements for the lender.
The term “streamline” does not imply that there is less or no cost involved in the transaction. The word is only meant to reference the amount of documentation required, indicating the potential for a more simplified, possibly expedited application and approval process.
Guidelines for a streamline refinance
There are several guidelines for a streamline refinance, many of which correlate with the type of streamline refinance you’re getting:
- Credit qualifying: Credit qualifying means appraisals aren’t required, but the lender must perform a credit and capacity analysis of the borrower.
- Non-credit qualifying: Non-credit qualifying means the borrower does not need to submit a new application with job or credit verification.
While it’s best practice to consult your lender about what type of streamline refinance you’re getting and how those guidelines match up, here is some general information applicable to all types of streamline refinancing:
- The existing mortgage must be an FHA-insured loan and a minimum of six payments must have been made.
- Six full months must have passed since the first payment due date and a minimum of 210 days must have passed since the closing date of the existing mortgage.
- The existing mortgage must be current and have no late payments for the six months prior to requesting the refinance loan, and no more than one 30-day late payment within the prior seven to twelve months.
- If the borrower assumed the mortgage that is being refinanced, the borrower must have made six payments since the time of assumption.
Pros and cons of an FHA streamline refinance
There are pros and cons to refinancing with an FHA streamline refinance. Here are some reasons why you may want to consider one:
Pros of an FHA streamline refinance
- Streamlined process: Just like the name entails, an FHA streamline refinance is looked at as a quicker approach to refinancing due to the simplified application and underwriting process.
- Potentially reduced documentation: With an FHA streamline refinance, the income and asset documentation requirements may be reduced, which expedites the process and requirements of the borrower.
- No home appraisal requirement: With a conventional refinance, a home appraisal is required. With a FHA streamline refinance, you’re not typically required to provide one.
- Potentially lower upfront costs: FHA streamlines can be less costly as an appraisal fee and other costs may not be applicable.
Cons of an FHA streamline refinance
- Closing costs: Although an FHA streamline refinance may be associated with fewer upfront costs, there are still closing costs involved like any other refinance.
- Mortgage insurance requirements: FHA streamline refinances require both an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP) which is paid monthly. The amount of MIP you pay is determined by the term of the loan, loan-to-value, and amount of the new mortgage.
- Cash back limitations: Only $500 incidental cash back is permitted.
How to apply for a FHA streamline refinance
Refinancing your home doesn’t have to be complicated. You may apply for an FHA streamline refinance by first finding an FHA approved lender in your area who offers FHA streamline refinancing (such as Chase) and discussing whether you meet the relevant requirements. If you do meet the necessary qualifications for an FHA streamline finance, you'll be required to gather and submit all the necessary documentation requested by the Lender.
- Is an FHA streamline refinance a good idea? An FHA streamline could potentially be a good idea for some homeowners. Deciding if that’s the case for you will depend on your personal circumstances. Weighing the pros and cons mentioned above carefully may help you decide.
- How long does a streamline refinance take? The timeline for an FHA streamline refinance will depend on when you begin your inquiry and documentation process. Once your application is submitted and all necessary steps are taken, it may take a month or longer to process your request.
- Are there closing costs with an FHA streamline refinance? FHA streamline refinance costs may be similar to the closing costs you see associated with other FHA refinances or conventional loans however an appraisal is not typically required unless an appraisal fee is not collected.
- How many times can you do an FHA streamline refinance? You may be able to use an FHA streamline more than once if you meet the qualifications and follow the required waiting period from the last closing date of the FHA-insured mortgage being refinanced.
- Does a streamline refinance affect my credit score? For non-credit qualifying individuals, an FHA streamline may not affect your credit score because a credit report is not required. For credit qualifying individuals, the lender is performing a hard credit check that, like any loan, has the potential to temporarily affect your credit score by a few points.
FHA streamline refinances are for existing FHA borrowers looking for a faster way to refinance their FHA mortgage with reduced documentation. Although FHA streamline refinances may be beneficial for some borrowers, it’s helpful to consider the pros and cons before making your decision. Consider speaking with a home lending advisor or trusted professional to understand the requirements, qualifications and how this type of refinance may impact you.