Here are some reasons you may want to consider an FHA Streamline.

You can lower your monthly payment

FHA Streamlines are a fast way to lower your monthly mortgage payment by locking in a lower interest rate. However, the FHA has strict guidelines regarding how you achieve the lower payment.

For example: You cannot add more than 12 years to your loan term. If you do extend your loan term to lower your payment, you must also reduce your interest rate. The exception is if you are going from an adjustable-rate mortgage to a fixed-rate mortgage.

You can refinance even if you owe more than your home is worth

Unlike many mortgage refinancing options, an FHA Streamline allows you to refinance even if you have an underwater mortgage, meaning you owe more on your home than it’s worth.

The loan amount for your FHA Streamline is primarily determined by the outstanding principal balance of your loan – so if your home value has declined, you may still be able to use an FHA Streamline to refinance.

Your lender may not need to verify your income or credit score

There are two types of FHA Streamline Refinance loans. The type you qualify for determines whether your lender will require income verification and a credit check.

There are two streamline refinancing options:

• Credit-qualifying streamline refinance: This type of refinancing requires you to provide income. It also requires the lender to perform a credit check and calculate your debt-to-income ratio (DTI). If your refinance happens to remove a borrower from the mortgage, you fall into this type of refinance. 
• Non-credit qualifying streamline refinance: With this type of refinancing, your lender still checks your credit, but they consider fewer factors within your credit report. For a non-credit qualifying refinance, your lender may not need to verify your income. This makes for a faster, easier approval process.

You may not need an appraisal

FHA Streamline refinances generally do not require an appraisal report because the loan amount is determined by what you owe on your existing FHA loan instead of the current home value or loan-to-value ratio (LTV).

You can typically close your refinance transaction sooner

This is because you are not required to provide as much documentation – and because an appraisal is not usually required. The underwriting process is faster, which means you can close on your streamline refinance sooner.

Prior to deciding on applying for an FHA streamline refinance, you should be aware of some of the following trade-offs:

Closing costs are required

As with most refinance options, the FHA streamline refinance requires the borrower to pay closing costs, which cannot be included into the new loan. However, your closing costs may be lower because you likely will not have to pay for an appraisal or credit check. Some lenders will even agree to pay your out-of-pocket closing costs – and charge you a slightly higher interest rate in exchange.

Limited net cash back at closing

FHA Streamlines only allow up to $500 in net proceeds (cash out) at closing. FHA Streamlines are intended to help you lower your mortgage payment. Therefore, if you are interested in taking cash out of your equity, you will need to choose another refinancing option, such as an FHA cash-out refinance.

Mortgage Insurance is required

You are required to pay an annual mortgage insurance premium (MIP) and an up-front mortgage insurance premium (UF-MIP) with both an FHA loan and an FHA Streamline.

When you first obtain an FHA loan, you pay a MIP, which protects your lender if you default on your loan. And you will continue to pay the MIP when you refinance. If you’re looking to no longer pay for mortgage insurance, a conventional loan may be a better choice, depending on how much equity you have.

The only way to remove MIP is to convert your FHA loan into a conventional loan – for which you will typically need a credit score of at least 620 – and have at least 20% equity in your home.

Here are the requirements that you will need to meet in order to qualify for an FHA Streamline.

Mortgage loan type

You must currently have an FHA-insured mortgage to refinance with an FHA Streamline. You cannot use an FHA Streamline to refinance an existing conventional loan or any other loan type. You may be able to obtain an FHA Streamline for a converted second home or investment property that is currently backed by an FHA loan. Equity requirements may vary, so be sure to speak with a Home Loan Expert.

Net Tangible Benefit

To obtain an FHA Streamline, the refinance must offer you a net tangible benefit. This means that the refinance must be beneficial to you according to the FHA’s guidelines. The definition of the net tangible benefit varies based on the details of your loan, but here are some general guidelines:

• If you are reducing the term of the loan, your new interest rate must not be higher than your current rate. Additionally, your new mortgage payment – which includes principal and interest, as well as your mortgage insurance premium – must not exceed your old payment by more than $50 per month.
  
• If you’re not reducing the term of the loan, there are guidelines regarding how much your interest rate and mortgage insurance premium rate can increase or decrease.

Timing

There are timing guidelines as to how long you must wait between closing on your FHA mortgage and applying for an FHA Streamline Refinance:

• You must have made at least six payments on your FHA mortgage.
• At least 6 full months must have passed since the first payment was due on the mortgage.
• At least 210 days must have passed from the closing date of the mortgage you like to refinance.

On-Time Payment History

You must have a history of on-time mortgage payments on your current FHA loan in order to qualify for the FHA Streamline refi. What does this mean?

• In the past 6 months, you had no payments that were more than 30 days late.
• In the past 12 months, you had no more than one late payment that was overdue by more than 30 days.