FHA Streamline Refinance: How to Lower Your Monthly Payment & Preserve Home Equity

The FHA streamline refinance program is extremely popular for many homeowners who currently have an FHA loan when interest rates dip from previous levels. The FHA streamline refinance allows people who currently have an FHA loan to refinance into a lower rate (when available) without having to completely re-qualify for a new loan. The documentation required for the FHA streamline refinance is less than when someone has to fully qualify in order to get an FHA loan in the first place. Certain documentation, including income and employment verification, bank account and credit score verification, may be waived. An important aspect of this program is that it does not require a home appraisal — and therefore, FHA allows you to use the original purchase price of your home as its current value, regardless if what it’s actually worth today.

FHA Streamline Refinance Guidelines and Benefits

Guidelines for the FHA streamline program will change from time to time, but largely the benefits remain the same — the homeowner saves money on their monthly mortgage payment thanks to lowering the interest rate on the loan.

Due to the FHA abolishing most typical verifications to get a mortgage earlier this decade, it’s fairly easy to qualify for the FHA streamline refinance. Some highlights include:

Employment verification isn’t required.
Income verification isn’t required.
Credit score verification isn’t required.
You don’t need a home appraisal.
Theoretically, you can be out of work, without income, and have a bad credit rating.
You are required to have a perfect 3-month payment history. One late mortgage payment is allowed in the last 12 months.
Loans must be current at closing.
You must have made 6 mortgages payments on your current FHA loan, and 210 days must have passed from the most recent closing date.
You must demonstrate that there is a “net tangible benefit” in the refinance, i.e. a legitimate reason for refinancing. (This is loosely defined as reducing the combined rate by at least a half a percent.)
The streamline refinance may not increase the loan balance to cover associated loan charges. Origination charges, titles charges, and escrow population must be paid by the borrower at closing or credited by the loan officer in full.
Because FHA doesn’t require appraisals, homes that are underwater are FHA streamline eligible.
You’re required to make two types of mortgage insurance payments — one upfront insurance payment paid at closing and an annual payment split into 12 installments.
For those loans endorsed on or after June 1, 2009 being replaced by an FHA streamline refinance, the upfront mortgage insurance premium is equal to 1.75 percent of your loan size. The annual MIP schedule for these loans is as follows:
- 15-year loan terms with an LTV over 90%: 0.70 percent annual MIP
- 15-year loan terms with an LTV under 90%: 0.45 percent annual MIP
- 30-year loan terms with an LTV over 95%: 0.85 percent annual MIP
- 30-year loan terms with an LTV under 95%: 0.80 percent annual MIP
Loans endorsed before June 1, 2009 replaced by an FHA streamline refinance are assigned different mortgage insurance than newer FHA loans. For these loans, the MIP is 0.55% annually. The annual MIP schedule is as follows:
- 15-year loan terms with an LTV over 90%: 0.55 percent annual MIP
- 15-year loan terms with an LTV under 90%: 0.55 percent annual MIP
- 30-year loan terms with an LTV over 95%: 0.55 percent annual MIP
- 30-year loan terms with an LTV under 95%: 0.55 percent annual MIP

FHA Streamline Refinance: Sooner is Better

To understand why the FHA offers refinancing without employment verification, income verification or home appraisals, it’s important to remember that the FHA is in the business of insuring mortgages, not making them. Therefore, it’s in their best interest to help the most people possible qualify for low mortgages rates. This theoretically leads to fewer loan defaults.

Homeowners typically close in less than 30 days. The faster you close, the bigger your FHA MIP refund, so with this refinance, it is rarely a good idea to wait. The best case scenario is that you’ll lower your monthly payment and preserve the home equity. The best way to find out more about the FHA streamline refinance program is to get in touch with a loan officer at an FHA approved lender and to visit the FHA’s official website here.

Have you used the FHA streamline refinance program? Any questions or comments about this program?

Let me know with a comment!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.