There comes a time in every relationship when you need to have a little chat about the future. And that can be a pretty stressful conversation if you aren’t ready for it.
Luckily, when it comes to refinancing your Federal Housing Administration (FHA) insured mortgage, the conversation is pretty simple (and far less awkward) – thanks to the FHA Streamline Refinance program.
So when you inevitably tell your lender “we need to talk,” don’t stress.
A streamline refinance may be able to help, and we’ll show you how!
What Is an FHA Streamline Refinance?
The FHA Streamline Refinance program allows borrowers who currently have an FHA mortgage to lower their monthly payments through a reduced interest rate — ultimately saving them money.
But it also saves them time.
Because the borrower has an FHA mortgage, it means they’ve already gone through the process and qualified. Knowing that you’ve been vetted already, the FHA cuts down on the paperwork, and in some cases, skips the home appraisal.
So if you’re not a fan of extensive paperwork or paying people to assess the value of your home — a streamline refinance is for you.
Hold the phone – there’s more
If you’re already thinking of calling your lender, please hold. There’s a little more we need to discuss.
Credit qualified vs. Non-credit qualified
There are two different streamline refinance options: credit qualifying and non-credit qualifying. Let’s dive in and figure out which may be right for you.
Score a lower rate
If you go with a credit-qualified streamline refinance loan, your lender will perform a credit check and calculate your debt-to-income (DTI).
Opting for the credit-qualified route adds a few extra steps to the process, but it comes with two potential benefits:
- Lower interest rate: If you have a favorable credit score (generally 680+), choosing the credit-qualified streamline refinance option may allow you to get a lower interest rate than you would with the non-credit qualified option.
- Refinance at any time: You don’t need to be 6 months into your current mortgage to be eligible for a credit-qualified streamline refinance.
This option sounds great – and for folks with high credit scores and minimal debt, it can be. But what if you don’t fall into that category?
Don’t sweat it. You can still streamline refinance.
No credit, no problem
A non-credit qualifying streamline refinance allows you to get a lower interest rate on your loan without a credit check, proof of employment or a debt-to-income ratio calculation. The interest rate you get will be based on the current market.
Here’s the one caveat: You must be 6 months or more into your FHA mortgage to apply.
So, regardless of the current financial situation you find yourself in, a non-credit qualifying streamline refinance can be a great way to lower the monthly payment on your mortgage.
FHA Streamline Refinance: Pros
A streamline refinance can reduce your interest rates and potentially save you time, but those aren’t the only benefits.
Check your credit score at the door
Let’s get this out the way. Your credit score is really important, like, seriously.
But depending on the streamline refinance option you choose, you may not have to worry about it as much. If you have an FHA mortgage, you’ve already proven to your lender that you are a suitable credit risk, so can you select the non-credit qualifying option.
Now, while your credit score won’t need to be rechecked, there are a few requirements you have to keep in mind.
You’ll need to be at least 6 months into your current mortgage and be up to date on your monthly payments.
The bottom line is that for most qualified buyers with 6 months on their FHA mortgage, getting a lower interest rate won’t depend on their credit scores.
Appraisal? None for us, thanks
You may recall having a professional appraiser determine the value of the house before you bought it and made it your home. Well, we have good news. Because you already went through the process, a new assessment may not be required for either the credit qualifying and non-credit qualifying streamline refinance.
Skipping a home appraisal will likely save you time and hundreds of dollars in additional fees.
That’s extra money you can take and put toward a new putter, that Gucci ‘fit you’ve been eyeing or your emergency savings.
FHA Streamline Refinance: Cons
Where there are pros, there are cons.
Before you get the ball rolling on a streamline refinance, there are a few reasons why you may want to explore other options.
‘Insuring’ you’ll pay it back: Private mortgage insurance (PMI)
An FHA Streamline Refinance requires you to pay a new mortgage insurance premium upfront — which will vary depending on when your loan was taken out:
- After April 2009: 1.75% of the current loan principal
- Before April 2009: 0.01% of the current loan principal
For mortgages after April 2009, the amount may seem daunting, but consider this:
- You can roll the mortgage insurance premium into your overall loan amount instead of having to pay out of pocket up front.
- Once you get to 20% or more in home equity, you may want to consider refinancing to a non-FHA loan — allowing you to remove PMI
Best I can do is $500: No cash back
An FHA Streamline Refinance lowers your monthly payment by lowering your interest rate or shortening your period of repayment.
What it won’t be able to do is tap into your home equity to get you a large amount of cash. The most money you’re going to take out with a streamline refinance is $500.
If cash is your goal, there are a few options out there:
- FHA cash-out refinance: you trade a larger principal on your current mortgage for available cash now
- Home equity line of credit (HELOC): tap into your home equity to receive a line of spendable credit similar to a credit card
- Home equity loan: get a lump sum of cash by tapping into your home equity
The (closing) cost of doing business: Still on the hook
According to FHA guidelines, during a streamline refinance, your new mortgage can’t have a higher principal than your original loan.
To avoid this, the FHA won’t allow your lender to roll closing costs into the new mortgage principal. That means you’ll have to pay the costs out of pocket.
While closing costs vary, they typically end up being in the thousands of dollars.
Be sure to do some research and ensure that your closing costs will be offset by your newfound savings on the new mortgage.
How To Qualify: FHA Streamline Guidelines
The prospect of saving time and money with an FHA Streamline Refinance is powerful.
Here are a few requirements you’ll have to meet in order to qualify:
|To qualify, you’ll need to …||Explained|
|Have a current mortgage that’s FHA insured||The option to streamline refinance is only available to borrowers with a current FHA loan|
|Be 6 months or more into your mortgage||You’ll need to have made six monthly payments and be 210 days into your current mortgage before refinancing. Though you can be granted a credit-qualifying exception in case of a life event (like a divorce)|
|Make payments on time||Your monthly payments will need to be up-to-date and paid on time. You may still qualify if you’ve had your mortgage for less than a year and you haven’t missed a payment by more than 30 days|
|Receive a “net tangible benefit”||In simpler terms: You must save money. The FHA will require you to reduce the overall principal of the loan by reducing interest rates or shortening the repayment period|
If you have read through the list and mentally went, “check, check, check,” then you could qualify for an FHA Streamline Refinance.
To Streamline or Not To Streamline: That Is the Question
Whether a streamline refinance is right for you is a question only you can answer.
Before having “the talk” with your lender, make sure to reflect on your current financial situation and future goals.
You’ve got this!