FHA Streamline Refinance

What Is an FHA Streamline Refinance?

An FHA streamline refinance is an option for homeowners that is administered by the Federal Housing Administration (FHA). It is intended to give consumers an easier way to obtain mortgage refinancing from a participating lender. In order to qualify, a homeowner must currently have an FHA-insured mortgage and cannot be delinquent on the payments.

How an FHA Streamline Refinance Works

The FHA has been allowing streamlined refinancing of mortgages it insures since the 1980s. Both lenders and consumers benefit from a reduced amount of paperwork and fewer required steps to take. The objective, as in any refinance, is to reduce the homeowner’s monthly interest and principal payment. However, no more than $500 in cash can be taken out on the refinanced mortgage.

The FHA does not require an appraisal on a streamline refinance. It uses the homeowner's initial purchase price instead. It also may not require a credit report, although the bank that is actually lending the money might.

FHA-insured mortgage loans are a popular choice for first-time homebuyers because they often require smaller down payments and lower credit scores than other conventional mortgages. However, these types of mortgages are only offered by banks that are FHA-approved.

On signing the mortgage, the borrower agrees to pay 1.75% of the loan amount as an upfront fee, also known as up-front mortgage insurance (UFMI), and annual fees for mortgage insurance premium (MIP) totaling 0.45% to 1.05%.

Streamline refinancing cuts out some of the paperwork and costs for both lenders and consumers.

Types of FHA Streamline Refinances

There are two forms of this refinance available — non-credit qualifying and credit qualifying. There are some differences in the agency's requirements for each type. Non-credit qualifying borrowers do not have to submit a new application with job and credit verification. No credit check streamline refinances are available to homeowners who have owned the property for at least six months. A credit qualifying streamline refinance is required when the new mortgage will result in a mortgage payment increase of 20% or more.

Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).

Requirements for an FHA Streamline Refinance

The biggest requirement for an FHA streamline refinance is demonstrating a net tangible benefit. In effect, this means that the homeowner must show the FHA that refinancing will be to their quantifiable financial benefit. This net tangible benefit could be achieved by reducing the mortgage term, the interest rate, or both.

So, for example, a homeowner would not meet the requirements for an FHA streamline refinance if the new mortgage lowers the monthly payment only by extending the total number of payments due. The homeowner will pay the same amount over time and has not achieved a net financial benefit.