The Federal Housing Administration (FHA) offers home buyers and owners a number of benefits through their FHA loan program. Popular among first-time home buyers, an FHA loan makes home buying more affordable because these loans can serve the needs of customers with low to moderate income levels and they are insured by the U.S. government.
Once you have an FHA loan, you may also benefit from an FHA Streamline Refinance to help you save money on interest, change your loan term, and more.
What is an FHA Streamline Refinance?
An FHA Streamline Refinance allows homeowners with existing FHA mortgages to refinance their home loan. Refinancing an FHA loan with a "Streamline Refinance" usually requires less paperwork than refinancing a conventional loan and may not require extensive income and appraisal requirements. This process allows you to easily refinance your FHA loan to lower the rate or change the term from an adjustable-rate mortgage (ARM) to a fixed-rate. You may decide to change your loan term and reduce the amount of years you have left to pay off your mortgage sooner.
FHA Streamline Refinance guidelines
HUD guidelines state that a Streamline Refinance of an FHA mortgage must result in a "net tangible benefit to the borrower."1 This benefit varies depending on the type of loan that you are refinancing, and the interest rate and terms of your old and new mortgages, but the outcome needs to result in savings that justify the costs of refinancing. HUD guidelines require mortgages in the Streamline Refinance program be current. You also cannot take out more than $500 in cash from the mortgage.
Are there closing costs with an FHA Streamline Refinance?
You need to pay closing costs to get a new mortgage with an FHA Streamline Refinance. As HUD states, a Streamline Refinance "refers only to the amount of documentation and underwriting that the lender must perform, and does not mean that there are no costs involved in the transaction." 1 The amount of the closing costs can vary. Finally note FHA guidelines do not allow you to finance closing costs into the loan amount of the new mortgage. These costs need to be paid at closing.
Pros of an FHA Streamline Refinance
Refinancing an existing FHA loan offers benefits that can help make the refinance process more efficient and easier to complete.
- The process is typically faster than a traditional refinance.
- There is less paperwork needed for an FHA Streamline Refinance.
- Typically, it does not require a home appraisal or income requirements.
- Typically, you will skip one month’s payment as your mortgage is processed.
- Credit requirements may be more lenient.
Cons of an FHA Streamline Refinance
While an FHA Streamline Refinance offers some nice benefits for homeowners, you should consider these restrictions before you decide if it’s the right move for you.
- You have to pay an upfront fee for mortgage insurance at closing, which is currently set at 1.75% of the base loan amount.
- If you finance the mortgage insurance fee into the loan amount, it will increase your loan balance.
- Besides the upfront fee, you still have to pay a monthly mortgage insurance premium (MIP) throughout the life of the FHA loan.
Is an FHA Streamline Refinance right for you?
For more information about an FHA Streamline Refinance, reach out to our Freedom Mortgage loan advisors who can walk you through your refinance options.
- See the U.S. Department of Housing and Urban Development’s page on "Streamline Your FHA Mortgage" for more information on program guidelines.