FHA Streamline Refinance: Is A Faster Mortgage A Better Mortgage?

Amy FontinellePersonal Finance Expert

Amy Fontinelle is a freelance writer, researcher and editor who brings a journalistic approach to personal finance content. Since 2004, she has worked with lenders, real estate agents, consultants, financial advisors, family offices, wealth managers, insurance companies, payment companies and leading personal finance websites. Amy also has extensive experience editing academic papers and articles by professional economists, including eight years as the production manager of an economics journal.

Mike CeteraEditor in Chief, Forbes Marketplace U.S.

Mike Cetera is the editor in chief for Forbes Marketplace U.S. Mike has written and edited articles about mortgages, savings accounts, CD rates and credit cards for more than a decade. Prior to joining Marketplace, his work appeared on Bankrate, The Points Guy and Fit Small Business. Mike earned a master’s degree in public affairs reporting from the University of Illinois and has been a journalist for more than two decades. He also has offered his expertise in numerous TV, radio and print interviews.

Amy Fontinelle,

Amy FontinellePersonal Finance Expert

Mike Cetera

Mike CeteraEditor in Chief, Forbes Marketplace U.S.

Personal Finance Expert, Editor in Chief, Forbes Marketplace U.S.

Rachel WitkowskiCorrespondent/Editor

Rachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications including The Wall Street Journal, American Banker and Bankrate. Ms. Witkowski's deep knowledge of government and policy aided a series of investigative stories that triggered congressional hearings on employee claims of discrimination at a federal agency and how indirect auto lenders were being reviewed by regulators.

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Rachel Witkowski

Rachel WitkowskiCorrespondent/Editor

Correspondent/Editor

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Updated: Dec 22, 2020, 9:26pm

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FHA Streamline Refinance: Is A Faster Mortgage A Better Mortgage?

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If you have an FHA loan and think you could get a better deal with a new FHA loan, doing an FHA streamline refinance could be a smart move. At a minimum, you’ll save time and money on an appraisal, which isn’t required for this type of refinance. And if you’re eligible for a non-credit-qualifying loan, a streamline refinance may be the least complicated mortgage you’ll ever close on.

What Is an FHA Streamline Refinance?

An FHA streamline refinance is when you replace your existing FHA loan with a new one without having to provide the same level of documentation or go through the same amount of underwriting scrutiny that another type of loan would require. While you can refinance with your existing lender, it’s not a requirement. Shop around to find the best interest rate and closing costs.

The two types of FHA streamline refinance are credit qualifying and non-credit qualifying. Neither requires a home appraisal. The credit-qualifying refinance requires the lender to review your credit score, credit history and ability to repay the loan; the non-credit-qualifying refinance does not.

Have your finances improved since you took out your existing loan? The credit-qualifying version may be worth the extra steps if it would help you get a lower interest rate. And you’ll need to choose this option if you’re removing a borrower from the mortgage, because the lender will want to make sure the remaining borrower can still pay the loan.

Have your finances gotten worse since you took out your current loan? A streamline refinance could be a lifeline by lowering your monthly payment and helping you avoid foreclosure.

FHA Streamline Refinance Qualifications

You can use a streamline refinance for a primary residence, secondary residence or non-owner-occupied residence. You must be current on your mortgage and have made all payments due in the last six months, though the FHA does allow you some grace if no more than one payment was 30 days late.

You must wait 210 days (about seven months) from the closing date of your existing FHA loan to become eligible for a streamline refinance. The new loan must help you financially in some way: by switching from an adjustable-rate mortgage (ARM) to a fixed-rate loan, shortening your loan term or lowering the combined rate of your mortgage and FHA insurance premiums.

For example, if you’re moving from one fixed-rate loan to another, the FHA requires that your new combined rate be at least 0.5 percentage points lower than your existing rate. If your interest rate is 4% and your mortgage insurance rate is 0.85%, and you could refinance at 3% with a 0.85% mortgage insurance rate, you’ll meet that test.

If you’re moving from an ARM to a fixed-rate loan, however, your combined rate is allowed to increase by up to 2.0%. Having a fixed-rate mortgage offers greater financial stability and protection against an ARM’s future interest-rate increases, so the FHA doesn’t require your new combined rate to be lower.

Your new loan can’t be longer than 30 years, but it also can’t add more than 12 years to your repayment period, so if you only have 15 years left on a 30-year mortgage, your new loan term can’t be longer than 27 years. The lender will require you to show that you have enough cash to close, and you can’t get more than $500 cash back at closing.

Qualifying for an FHA streamline refinance after Mortgage Forbearance

What if you’ve taken advantage of mortgage forbearance, as many people have due to the pandemic or another presidentially declared major disaster? Don’t count yourself out. Instead, see which of these situations applies to you:

My mortgage was not modified. If you’ve made at least six payments on your FHA loan either before or after forbearance and your mortgage was not modified after forbearance, you can do a non-credit-qualifying streamline refinance any time. You can do a credit-qualifying refi if you’ve made a couple of payments post-forbearance.
My mortgage was modified. If your mortgage was modified after forbearance, you must make at least six payments on the modified mortgage before you become eligible for either a credit-qualifying or non-credit-qualifying streamline refinance.

FHA Streamline Refinance Costs

A streamline refinance does have closing costs, but they may be lower than the closing costs you’d typically incur when getting a mortgage. That’s because you won’t have to pay for an appraisal and you may not have to pay for a credit report. Still, you will have to pay these fees:

FHA up-front mortgage insurance premium (UFMIP)
Loan origination fee
Title search fee
Lender’s title insurance fee
Notary fee

You may also pay mortgage points if you choose to buy down your interest rate.

Most borrowers will pay the FHA’s current UFMIP rate of 1.75% of the loan amount. However, if you took out your current FHA loan before April 2009, your UFMIP will be only 0.01% when you do a streamline refinance. You’ll get a break on your monthly mortgage insurance premiums, as well: your rate will be 0.55% regardless of your loan amount or loan-to-value ratio.

If you don’t want to pay any closing costs, ask your lender about a no-cost refinance. They may offer you a higher interest rate in exchange for paying your closing costs. The higher rate might prevent you from achieving enough savings to qualify for a streamline refinance, however.

If you’ve had your current FHA mortgage for seven to 36 months, you’ll be eligible for a refund on the UFMIP you paid when you got your current mortgage. (Remember, you can’t do a streamline refinance unless you’ve had your FHA loan for at least six months). Since you paid the UFMIP within the last three years, you won’t have to pay the full premium again.

The size of the refund diminishes the further you are in your loan term. At month seven, the refund is 68%, but at month 36, the refund is just 10%. So if you borrowed $200,000 and paid an UFMIP of $3,500, the biggest refund you could get is $2,380 if you refinance as soon as you’re eligible.

You Must Continue to Pay FHA Mortgage Insurance

An FHA streamline refinance will not eliminate your obligation to pay those monthly mortgage insurance premiums that are costing you 0.45% to 1.05% of your loan balance per year. The good news is that as your loan balance declines, your MIPs decline.

If you have at least 20% equity, a steady income and good credit, though, you’ll want to consider refinancing into a conventional loan because it might save you money: it won’t require any up-front or monthly mortgage insurance.

However, MIPs have changed over the years. If you took out your current FHA loan when they were higher, you could have lower MIPs by refinancing. In mid-2013, for example, MIP rates range from 0.45% to 1.55%, compared to 0.45% to 1.05% now.

Deciding Which Type of Refinance to Choose

While the simpler underwriting of a non-credit-qualifying FHA streamline refinance is appealing, it shouldn’t be the reason you choose this type of refinance; it’s just gravy. Cough up the paperwork if a credit-qualifying refinance, FHA or otherwise, will get you a better deal. Try our mortgage refinance calculator to see how much refinancing could save you.

Below, we’ve summed up the pros and cons of FHA Streamline Refinancing. If this type of refinance doesn’t sound like the best fit for your circumstances, consider a conventional refinance (with or without cash out) or an FHA cash-out refinance. Another option is an FHA 203(k) refinance, which can help if you want to repair or upgrade your home. You don’t want to miss out on the refinancing boom if it could help you.