What Is an FHA Streamline?
FHA Streamline 101
If you have an FHA loan now and are looking for better loan terms, closing on an FHA Streamline refinance could be a savvy financial move. Saving time and money on an appraisal and securing a low interest rate are already a win-win scenario. If you're also eligible for a non-credit-qualifying streamline, this could be the easiest refinance you'll ever do.
What is an FHA Streamline Refinance?
An FHA Streamline refinance allows you to replace your current FHA loan with a new, better FHA loan — without having to go through all the steps and scrutiny of a traditional refinance process.
There are two main types of FHA streamline refinance; a credit-qualifying streamline and a non-credit-qualifying streamline. Neither one requires another home appraisal. The credit-qualifying refinance requires a review of your credit score, credit history, and your ability to repay the loan; the non-credit-qualifying option does not.
If your financial picture has improved since you got your existing loan, the credit-qualifying option may be worth the extra steps to secure the lowest possible interest rate you can. You would also need to use this option if you're planning on removing someone from the loan. However, if your finances have not changed much, then a non-credit-qualifying streamline is a great option.
Do you qualify for an FHA Streamline refinance?
You can use a streamline refinance for your primary home, a second home or even an investment property as long as you currently have an FHA loan. As with most refinances, you must be current on your loan and have no more than one 30 day late payment in the past six months.
FHA loans become eligible for streamline refinancing once you've made at least six monthly payments, and a minimum of 210 days have passed since your current loan closed. If you have had your FHA loan for a longer period of time, keep in mind you can't add more than 12 years back to your repayment period. So if you have 14 years remaining on a 30 year loan, you won't be able to go back to another 30 year loan.
It's an FHA requirement that your new loan must have a financial benefit for you; lowering your interest rate by at least 0.50 percentage points, switching from an adjustable-rate mortgage (ARM) to a fixed-rate loan, shortening your loan term, or lowering the combined rate/cost of your mortgage payment and FHA insurance premiums. There's no limit on how many times you can refinance using an FHA streamline, as long as it's beneficial for you though.
What if your loan was in forbearance or modified?
With so many homeowners feeling the impact of the recent pandemic, having to take advantage of mortgage forbearance doesn't automatically exclude you from a streamline refinance. What you'll be able to do, and when you'll be able to do it depends on how your current loan has been handled:
For loans that were not modified
- As long as you have made at least six payments on the existing loan, you are eligible to do a non-credit-qualifying streamline refinance at any time.
- Once you have made one to two payments post-forbearance, you are eligible to do a credit-qualifying streamline.
For loans that were modified
- You will have to make at least six payments on the modified loan before you are eligible for any type of streamline refinance.
What about FHA Mortgage Insurance?
Although an FHA streamline refinance won't help you to eliminate your monthly mortgage insurance premiums entirely, the good news is that as your loan balance comes down, so do your MIPs. Once you reach a loan-to-value of 80% or less (with verifiable income and solid credit scores) you’ll want to consider refinancing into a conventional loan because it typically won’t require any up-front or monthly mortgage insurance.
Mortgage insurance premiums have changed over time, so if you took out your current FHA loan when they were higher, you could receive a lower premium by refinancing as well.
With a streamline refinance, you'll still pay the FHA’s current up-front mortgage insurance premium (UFMIP) rate of 1.75% of the loan amount. If you’ve had your current FHA mortgage between 7 months and 36 months, you won't have to pay the full premium again. You’ll be eligible for a partial refund of the UFMIP you paid when you got your current loan. The amount of the refund declines steadily the longer you have your loan, starting with 68% at the 7-month mark and reducing to just 10% at the 36-month mark.
One notable exception is if your current FHA loan is from before April 2009; in this case your UFMIP will be only 0.01% when you do a streamline refinance and your monthly premiums will be reduced to 0.55% (regardless of your loan-to-value percentage).
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