2021 Rates and Requirements for FHA Streamline RefinanceCASAPLORERTrusted & Transparent
If you have an FHA-insured mortgage and want to take advantage of lower interest rates, then you may be considering a mortgage refinance. Fortunately, the Federal Housing Administration (FHA) has a streamline refinancing program to help make the process easier.
FHA Streamline Refinance Best Rates and Lenders
As of October 16, 2021, the best mortgage rate for 30-year FHA streamline refinancing is 2.250%, and the best 30-year FHA mortgage APR is 3.198%, offered by Rocket Mortgage. This does not include the annual FHA mortgage insurance fee, which is about 0.8%.
† While we try our best to get your the best rates, we cannot guarantee that they are always accurate. Casaplorer assumes no liability and provides no warranty for the accuracy of the information presented, and will not be held responsible for any damages resulting from its use. Rates shown are for informational purposes only and may differ by zipcode, county, and state. Estimated payments do not include taxes and insurance. Some state and county maximum loan amount restrictions may apply. Casaplorer is not endorsed or sponsored by any mortgage lender or government agency.
What is a FHA Streamline Refinance?
FHA streamline refinancing is a refinancing program exclusively for individuals with FHA mortgages. It is an easy way to refinance your mortgage to get a lower mortgage rate and monthly mortgage payment or change your mortgage term. You can get a fixed-rate or adjustable-rate mortgage with a 15 or 30-year term to match your current mortgage term. While you can extend your mortgage term from 15 years to 30 years to lower the monthly mortgage payment, you cannot turn a 30-year mortgage into a 15-year mortgage because it violates the FHA streamline refinancing requirements.
Since FHA streamline refinancing is done by FHA-approved lenders, you save time and money by reusing some of the information from your original mortgage application. Lenders may not have to verify your income, credit, or home value.
What You Should Know
- FHA streamline refinancing is fundamentally the same as refinancing any mortgage. You are replacing your current mortgage by using the new mortgage to pay off the remaining balance from the old one.
- FHA streamline refinancing cannot be used as cash-out refinancing. The FHA only allows $500 to be cashed out and has strict guidelines for how it can be used.
- FHA streamline offers less flexibility in terms of readjusting your mortgage term. For example, you cannot shorten your mortgage term if it means a higher monthly mortgage payment.
- The new mortgage rate can vary between lenders. Treat FHA streamline refinancing as just another option for refinancing your mortgage. You should apply to at least 3-4 different lenders to ensure you get the best deal.
- FHA streamline refinancing can save you money, but there are also new costs to consider like closing costs or the new upfront FHA MIP. You need to balance your total monthly payment savings with these costs.
FHA Streamline Refinance Pros and Cons
- Less documentation: Since you already qualified for an FHA loan, you can use a non-credit qualifying streamline refinance, which foregoes gathering certain documentation like income or credit verification.
- No home appraisal required: Since FHA has appraised your home once, you can skip the home appraisal process when you apply for an FHA Streamline Refinance. It does not matter whether your home value has increased or decreased since.
- Previous upfront FHA MIP partially refunded: When you first get an FHA loan, you have to make an up-front mortgage insurance payment of 1.75% of the total loan amount. When refinancing, you will get a partial refund of this amount, which decreases the longer you wait to refinance your mortgage.
- Eligible with worse financial conditions: If your credit score has decreased or you have lost some of your income, you may still be eligible for FHA streamline refinancing with certain lenders because employment, income, and credit score verification is not required.
- FHA Loans: FHA streamline refinancing is only available to homeowners with current FHA-insured mortgages.
- Closing Costs: Closing costs vary by lender, but you will have to pay a new upfront FHA MIP of 1.75% on your refinanced mortgage.
- Mortgage limit: The refinanced mortgage cannot be any larger than the current mortgage, so if your home appreciates and your lender re-appraises it, you may be ineligible for streamline refinancing.
- Cash-out limit of $500: FHA streamline refinancing is not a substitute for cash-out refinancing and the $500 allowed is only used to help with the up-front FHA MIP.
FHA Streamline Refinance Closing Costs
With an FHA streamline refinance, you will have to pay many of the same closing costs as a regular mortgage refinance. Typically, this amounts to between 2% and 5% of the total mortgage amount. Luckily, you can save some money because FHA streamline refinancing does not require a new home appraisal since lenders can use the home appraisal attached to your original mortgage. This can save you between $300 and $600 in closing costs.
Generally, the closing costs associated with an FHA streamline refinance will include fees for the:
- Loan origination
- Mortgage broker
- Loan application
- Loan underwriting
- Flood certification
- Title examination
- Notary public
- Legal assistance
There are many closing costs associated with refinancing. Both the types of fees and amount per fee vary depending on each borrower’s specific situation.
Some lenders offer “no-cost” refinancing, which lets you roll closing costs into the mortgage loan. If you choose this option, your property will be reappraised and any additional equity in the home would be used to cover closing costs. Your lender may charge a higher mortgage rate to compensate for the lack of closing costs, so you should ensure that you do not end up paying more as a result.
FHA Streamline Refinance Guidelines
FHA streamline refinances can either be credit qualifying or non-credit qualifying. A non-credit qualifying FHA streamline loan does not require borrowers to submit a new application and does not require income, employment, or credit verification. FHA-approved lenders can use paperwork from the borrower’s existing mortgage to streamline the refinancing process. This is a typical streamlining process and is only available under the following circumstances:
- The monthly principal and interest payment is lower than the existing mortgage or the change in mortgage term increases the mortgage payment by at most 20%
- Deletion the of borrower(s) does not trigger a due-on-sale clause
- The property has been owned for at least six months and at least six monthly mortgage payments have been made
What is a due-on-sale clause?
If you are not eligible for a non-credit qualifying streamline refinance, your lender will have to gather your credit report and debt-to-income (DTI) ratio and re-assess your ability to make monthly mortgage payments. You may also want a non-credit qualifying streamline refinance if your financial circumstances or credit history have improved. If your lender re-assesses your creditworthiness, you may be eligible for lower mortgage rates.
FHA Streamline Refinance Requirements
You will need to fulfill certain requirements for both a credit qualifying and non-credit qualifying stealing refinance.
- FHA-Insured: The existing mortgage that will be refinanced must be an FHA-insured loan.
- The Mortgage Must Be Current: Before you can apply to refinance your FHA loan, 210 days must have passed since the closing date of your initial loan or latest refinancing. You must make monthly mortgage payments on your current FHA loan on time. Within the past 6 months, you must not have made any payments more than 30 days late and within the past 12 months, you can have at most one payment more than 30 days late.
- Net Tangible Benefit: The refinance must result in a net tangible benefit to the borrower. The exact definition of “net tangible benefit” varies depending on your loan, but generally, this includes reducing the mortgage term without increasing the monthly payment or decreasing the monthly mortgage payment.
- Cash-Out Limit: No more than $500 can be taken out of the refinanced mortgage during the streamline refinancing. The FHA allows $500 to be taken out only for the up-front FHA mortgage insurance premium.
- Minimum Credit Score: While the FHA does not have a minimum credit score, lenders may look at your credit score when determining your eligibility for streamline refinancing. Generally, the minimum credit score is about 640, but some lenders may have requirements as low as 600.
Is FHA Streamline Refinance a Good Idea?
Much like any major real estate decision, FHA streamline refinancing is good if the benefits outweigh the costs. The FHA streamline refinancing program is a great way to refinance your mortgage, but the decision should be made after understanding what it means for you. You should consider many different lenders and even different types of refinancing.
The first thing to do is to consider how you benefit. While the FHA defines it as your net tangible benefit, it comes down to how much money you save compared to your old mortgage or how much you benefit from a longer mortgage term. With any refinancing, you can take advantage of today’s low mortgage rates and lower your monthly mortgage payments. Next, you should compare these savings with your closing costs. Even if you have lower monthly payments, it will be a while before you “break-even” and make back your money from having to pay refinancing closing costs.
Once you figure out the net tangible benefit or cost of an FHA streamline refinance, review the pros and cons, then consider how each one applies to your situation. Once you weigh all the different factors related to this decision, you should have a clear idea of whether or not an FHA streamline refinance is right for you.