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FHA Streamline Refinance

By Sari R. Updated on 7/28/2017

fha streamline refinance

If you currently have an FHA mortgage and would like to refinance your mortgage loan, the FHA streamline refinance loan program was created specifically for you. 

This time-saving mortgage refinance program is the easiest way a homeowner with an FHA mortgage can refinance their home loan. This loan program streamlines the entire refinance process in order to cut down on red tape and the amount of time and resources it would otherwise take to refinance an FHA mortgage.

What are the advantages of FHA Streamline Refinancing?

No appraisal

The defining feature of the FHA Streamline Refinance is that there is no appraisal required. Instead, the homeowner can use the home's original purchase price as the home's current value. 

For homeowners whose home value has dropped or who are currently underwater on their mortgage, an FHA Streamline Refinance allows the mortgage loan to be refinanced without additional cost or penalties.

Less paperwork

Credit checks, debt to income ratios, employment verification, and other common requirements eat up time and create stress and confusion. The FHA streamline refinance eliminates many of the complex steps involved, allowing you to get your new loan and your lower interest rates without delay.

No verification

Streamlined refinancing applications require no verifications of employment, income, or credit score. What does this mean? You can still qualify for an FHA loan if you are out of a job, have no income, a terrible credit score or are without equity in your home.

Because there is no verification required, the process of getting an FHA Streamline Refinance is relatively quick and convenient when compared to the lengthy process of borrowing FHA-insured loans.

Choose your terms

An FHA streamline refinance is available to borrowers as a fixed-rate or adjustable-rate mortgage and can be repaid over a 15 or 30-year term. FHA Streamline Refinances have the same mortgage rates as regular FHA mortgage rates. 

Borrowers are not penalized for being underwater or having hardly any equity in their homes.

What are the requirements of an FHA Streamline Refinance?

FHA-Insured Loan

Only borrowers with FHA-insured loans qualify for FHA streamline refinancing. However, borrowers with conventional mortgages may still opt for traditional FHA refinancing.

Payment History

To reduce its own risk, the Federal Housing Administration requires that homeowners who intend to use the program have a spotless payment history for at least twelve months before streamline refinancing. 

Loans must be current at the closing date without any late payments for the previous year.

Waiting Period

The FHA requires that borrowers wait 210 days from the most recent closing date and make a minimum of 6 mortgage payments on their current FHA loan to qualify.

Costs and Fees

The FHA strictly forbids the increasing of a Streamline Refinance loan balance to pay associated loan fees. All costs must be paid by the borrower in cash at closing, or fully credited by the loan officer.

Net Tangible Benefit

Finally, borrowers who apply for FHA streamline refinancing must demonstrate that the refinance will result in a Net Tangible Benefit, or a benefit which outweighs the cost of undergoing the refinance process. 

Borrowers must benefit from the refinancing process in some way. One example of a Net Tangible Benefit would be a borrower reducing the cost of the principal, interest, and mortgage insurance by 5% or more; because the borrower gains something from the transaction, this would qualify.

Mortgage Insurance

An important FHA Streamline Refinance requirement is mortgage insurance. Borrowers are required to pay both an upfront payment at the time of closing, and a monthly fee divided into 12 installments that are paid alongside your monthly mortgage payment.

FHA Streamline Refinance program homeowners are divided into two categories:

  • Homeowners whose new mortgage is replacing an FHA mortgage endorsed before June 1, 2009.
  • Homeowners whose new mortgage is replacing an FHA mortgage endorsed on/after June 1, 2009.

Homeowners with older FHA mortgages endorsed before June 1, 2009, pay significantly lower mortgage insurance than newer FHA homeowners.

FHA Streamline Refinance MIP

For loans endorsed before June 1, 2009.

Expect to pay a minimal upfront mortgage insurance premium, the equivalent of 0.01% of the loan. For example, on a $200,000 mortgage loan, a $20 upfront MIP will be paid by the borrower at closing. 

For FHA loans endorsed before June 1, 2009, the annual MIP is 0.55% per year or 55 basis points.

However, 15-year fixed rate mortgages with LTVs 78% or less are not required to pay an annual MIP.

If the mortgage is a Jumbo FHA Mortgage with a loan size more than $625,000, there are no additional mortgage insurance premiums required.

Areas which permit FHA jumbo loans over $625,000 are typically high-cost metropolitan areas such as New York City, as well as much of California, Hawaii, and Alaska.

FHA Streamline Refinance MIP

For loans endorsed on/after June 1 2009.

If your FHA refinance was endorsed on or after June 1, 2009, expect to pay an Upfront Mortgage Insurance Premium equal to1.75% of your loan. For example, for a $200,000 mortgage loan, a $3,500 upfront MIP will be added to the loan balance.

If a homeowner refinances within three years of the beginning of their original FHA loan, the FHA will refund a portion of previously-paid upfront MIP. Refinancing sooner rather than later is most beneficial since the refund will be larger and the total loan size smaller, decreasing the monthly payment while preserving home equity.

The following is a list of Annual Morgage Insurance Premiums (MIP) for loans made on or after June 1, 2009:

  • 15-year loan terms with loan-to-value over 90%: 0.70%annual MIP
  • 15-year loan terms with loan-to-value under 90%: 0.45% annual MIP
  • 30-year loan terms with loan-to-value over 95%: 1.35% annual MIP
  • 30-year loan terms with loan-to-value under 95%: 1.30% annual MIP

Jumbo FHA mortgages include an additional MIP fee.

15-year fixed-rate mortgage loans greater than $625,000 are required to pay an additional 0.25 basis points, while 20 and 30-year loans are an extra 0.20 basis points.

FHA MIP Cancellation

Some FHA loans have temporary Mortgage Insurance Premiums, determined by the FHA based on how much equity is stored in the home at closing.

Homeowners who are replacing a loan on or after June 1, 2009:

  • Loan-to-value of 90% or less at the time of closing: MIP required for 11 years
  • Loan-to-value greater than 90% at the time of closing: MIP required for life of loan

Note: Homeowners who are refinancing may reduce their loan balance by paying down funds at the time of closing to avoid having to pay MIP for the entire life of the loan. Doing so will require a current appraisal of the home.

MIP will also be canceled if the homeowner refinances to a different loan program.

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About The Author:
Sari R.
Sari R. is a mortgage editor for Lender411com. She graduated with a Bachelor's Degree in Screenwriting and Public Relations/Advertising from Chapman University. She can be reached at sarelyn@lender411com.

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