FHA Streamline Refinance Loan: What Is It? & How Does It Work?

Have you bought a home using a loan from the Federal Housing Administration (FHA)? Did you know you might get lower rates or pay off the loan faster with an FHA streamline refinance loan?

Keep reading to discover everything about refinancing your FHA loan, including the pros and cons and requirements.

What Is FHA Streamline Refinance?

What is an FHA streamline refinance loan? It allows you to obtain a new FHA loan with better rates even if your finances can’t stand up to the serious scrutiny typical of refinancing.

How Does FHA Streamline Refinance Loan Work?

The FHA home loan streamline refinance involves two types of loans.

Credit Qualifying

Credit-qualifying refinancing requires income documentation and credit checks. The mortgage company also calculates your debt-to-income ratio when they determine if you qualify for the loan.

Choose this option if you need to remove a borrower from the original mortgage. For example, if your parents no longer want to be cosigners.

Another advantage of this type of refinancing stems from the ability to roll closing costs into the loan. Otherwise, you need a substantial chunk of change to complete the refinancing.

With the increased rigor of the application process, a credit-qualifying streamline refinance loan works best for those who need to remove a borrower. Alternatively, if you have strong income and credit but no savings to help with closing costs, choose this loan.

Non-Credit Qualifying

While your lender still checks your credit for this type of refinancing, they consider far fewer factors than in other refinancing processes. Some lenders might choose to verify your income, but the entire process requires less documentation and requirements, expediting the process.

However, with a non-credit qualifying loan, you can’t roll in closing costs, meaning you’ll need some cash on hand to close the deal. If you have weak income or credit but can provide payment for the closing, this makes to best refinancing option for you.

Pros and Cons of FHA Streamline Refinance Loan

If you wonder, “Should I streamline refinance my FHA loan,” consider the advantages and disadvantages of the process.

Advantages of FHA Streamline Refinance

A streamline refinance loan comes with several advantages that make it perfect for people who find themselves in a weaker financial position.

• Reduce your interest rate. When you refinance, you’ll receive a lower interest rate and often pay less each month.
• Pay off faster. As long as your interest rate doesn’t increase or your monthly premium doesn’t grow by more than $50, you can reduce the term of your loan to 15 years. This means you’ll pay off your loan in half the time without paying monthly payments that pose an undue burden.
• Switch to a less risky loan. During the process, you can switch from a mortgage with a variable rate to a fixed-rate mortgage, providing more security and certainty to your monthly payments.
• No income documents. Depending on the type of refinancing you require, the lender won’t check your income statements. This means people without a strong income can still receive better rates on their mortgages.
• No employment verification. Most lenders won’t require you to verify your employment status, so if you’re between jobs, you can find some relief in your monthly payments after refinancing.
• No debt consideration. For non-qualifying refinancing, the process doesn’t consider your other debts. If you have a high debt-to-income ratio, you might still qualify for the less rigorous refinancing.
• No appraisal. An FHA streamline refinance loan bases its rates on what you owe on your current FHA loan. Thus, it usually doesn’t require an appraisal of your home.
• Quick turnaround time. As the name implies, a streamline refinance loan closes faster than traditional mortgages because it doesn’t require as much documentation or investigation from the lender.
• Lower closing costs. For a non-qualifying loan, you provide the closing costs. However, they often come in lower because they don’t include an appraisal or credit check.
• Easily add a borrower. While removing a borrower is difficult, you can add a new borrower to the loan without a credit check.
• Flexible residence application. While typical FHA loans only apply to your primary residence, you can use a streamline refinance loan for your vacation or rental property!
• No prepayment penalty. Typical mortgages penalize you for paying your balance early because they want to profit from the interest. With a streamline refinance loan, you won’t incur a penalty for paying early.

Disadvantages of FHA Streamline Refinance

While refinancing brings extensive benefits, keep these few downsides in mind.

• Requires an FHA mortgage. You can’t apply for FHA refinancing if you don’t have an existing FHA loan.
• Requires strong payment history. You can’t qualify for refinancing if you’ve missed too many payments on your current loan.
• Coborrower permanence. Once you add a borrower, only death, legal separation, or divorce can remove them from an FHA streamline refinancing loan.
• Additional insurance. Refinancing your FHA loan requires you to purchase mortgage insurance. This adds an additional monthly premium to your loan.
• Closing costs. You’ll need some cash on hand to pay the closing costs. If you lack money, consider asking a relative or close friend.

FHA Streamline Refinance Eligibility Requirements

Use the following steps to determine if you meet the streamline refinance FHA loan requirements.

1. Verify Your FHA Loan

You can find your FHA case number in your mortgage statements or on a deed of trust. You can also contact your lender to confirm you currently have an FHA loan for your mortgage.

2. Check Payment History

To qualify for refinancing, you must prove you’ve had a mortgage for at least six months. Lenders also want to see you’ve had no more than one payment late in the last 12 months. If you’ve had a late payment, it doesn’t automatically disqualify you unless the payment was more than 30 days late.

If you don’t meet these criteria, consider waiting to apply for refinancing until you can show a stronger payment history.

3. Confirm Wait Time Termination

You cannot apply for FHA refinancing within 210 days (7 months) of your original mortgage date.

4. Prove It’s a Benefit

A lender won’t refinance you unless you prove it presents a net benefit to your financial situation. You must meet at least one of the following requirements:

• Lower interest rate. It must decrease by at least half a percentage point.
• Reduced risk. You want to switch from an adjustable-rate mortgage to a fixed-rate mortgage.
• Shorter term. You will reduce the term of your loan. For example, paying it off in 15 years rather than 30.

5. Confirm Your Cash

You must prove to your lender you can cover the closing costs. If you don’t have the money, consider asking a friend or family member or contacting a charitable organization or government grant for help.

How To Apply for FHA Streamline Refinance Loan?

You can apply for an FHA loan refinance streamline on any lender’s website. With access to the best rates and a personalized approach, Champions Mortgage makes it easy!

Bottom Line

Do you want to refinance but aren’t in a strong financial position? An FHA streamline refinance loan might be your ideal option. To discover if you qualify or how we can help you achieve refinancing, call Champions Mortgage at (281) 727-2500.