FHA Streamline Refinance

A Federal Housing Administration streamline refinance, or FHA streamline refinance, is a mortgage refinancing option offered by the U.S. government. An FHA streamline refinance requires the mortgage to be already FHA-insured and current, not delinquent. The refinance results in a reduction in the homeowner’s interest and principal payment, and no more than $500 in cash can be taken out on the refinanced mortgage.

The FHA began allowing streamlined refinancing for insured mortgages in the 1980s. The idea behind an FHA streamline refinance was to make better mortgage terms easier and less expensive for homeowners to access. With an FHA streamline refinance, lenders deal with a reduced amount of paperwork and underwriting, hence the word “streamline.”

To make refinancing more possible for eligible homeowners, the FHA does not require an appraisal on a streamline refinance and instead uses the homeowner’s initial purchase price. It also does not require a credit report for non-credit qualifying streamline refinances. A credit report is required for credit qualifying streamline refinances. Despite this, the lender might ask for a credit report as a part of its own policy. The program does not ask for bank or asset statements. It also does not require home appraisals.

There are two forms of this refinance available: non-credit qualifying and credit qualifying. There are some differences in what the FHA requires for each type. Non-credit qualifying refinancing is available to homeowners who have owned the property for at least six months, and the refinance must take place at least 210 days after the closing date of the original mortgage. 

Lenders involved with this FHA refinancing program offer a number of payment options. A “no cost” option charges the borrower no out-of-pocket expenses, but carries a higher interest rate than if the borrower paid closing costs in cash. The new mortgage amount is not permitted to include closing costs. 

The biggest obstacle to meeting the requirements for an FHA streamline refinance is demonstrating a net tangible benefit. In effect, this means homeowners have to show the FHA that refinancing will be to their quantifiable financial benefit. The net tangible benefit could be achieved through reducing the mortgage term, the interest rate or a combination of both. So, for example, a homeowner would not meet the requirements for an FHA streamline refinance if refinancing resulted only in a lower monthly payment, but left the homeowner with a longer mortgage term.