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A Guide For FHA Streamline Refinance: How It Works And What Rates To Expect

Kevin Graham7-Minute Read
July 12, 2022

If you took out an FHA loan and are looking to change your loan terms or lower your monthly payments, an FHA Streamline Refinance could be a good option. A Streamline Refinance can be easier than other types of mortgage refinancing options. This article will outline how the process works and the types of rates you can expect to receive.

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What Is An FHA Streamline Refinance?

An FHA Streamline Refinance allows qualified homeowners to refinance their current FHA loans. And as the name suggests, it’s quicker and more simplified than other types of refinancing.

Depending on the Streamline refinance you get, there’s very little paperwork, and your lender may not have to verify your credit score or income. An FHA Streamline Refinance can even bypass the appraisal process in many cases.

An FHA Streamline Refinance can help you lower your interest rate, shorten your loan term and reduce your monthly payments. However, you can’t take cash out using an FHA Streamline.

How FHA Streamline Refinance Works

To understand how the FHA Streamline can be easier, it’s helpful to know how a traditional home refinance works. When you refinance your home, you’re applying for a completely new mortgage and will go through a process similar to what you did when you bought your home.

That means you’ll have to undergo a credit check and verify your income and assets. And as you’re going through underwriting, your lender will have your home appraised and assigned a value.

This safeguard is put in place so your lender doesn’t lend you more than your home is worth. If you default on your home and your lender forecloses on it, they want to be able to re-sell it at the original value of the loan.

But an FHA Streamline works differently, and the program offers two refinance options: non-credit qualifying and credit-qualifying. If you choose the credit-qualifying refinance, your lender will check your credit score and debt-to-income ratio to ensure you can make the monthly payments.

But with the non-credit qualifying refinance, the FHA allows lenders to do more limited checks. There’s typically no income or asset documentation, and no appraisal. The lender may check your credit but with less considerations.

Types Of Loans For Streamline Refinancing

As we already mentioned, there are two primary refinancing options you can choose from — credit qualifying and non-credit qualifying. Let’s look at each refinancing option more closely to determine which is the best option for you.

Credit Qualifying

If you choose a credit qualifying refinance, your lender will verify your income, check your credit report and check your debt-to-income ratio to determine whether you qualify for the mortgage. And even though it’s more time-consuming, there are certain cases when choosing a credit qualifying refinance could make sense because it can provide better pricing.

For instance, if your credit score has significantly improved since you originally took out the loan, re-qualifying could help you lower your interest rate. And if you want to add another borrower to the loan, you may have to choose a credit qualifying refinance.

Non-Credit Qualifying

If you choose a non-credit qualifying refinance, you can save yourself quite a bit of time and hassle. This option allows you to refinance your mortgage without having to provide as much documentation or go through underwriting or an appraisal on your home. The theory is that your history of on-time payments shows the FHA that you’re a good candidate for a loan. Because there is more risk with this refinance, pricing may be slightly higher.

Other Refi Options 

You can consider additional refinancing options, like refinancing your FHA loan to a conventional mortgage and an FHA cash-out refinance. It’s essential to research and determine which option is best for your financial situation.

Requirements For An FHA Streamline Refinance

Before applying for an FHA Streamline Refinance, you should check to ensure you meet the following guidelines:

  • FHA-backed mortgage: Only borrowers with an existing FHA loan will qualify for the Streamline Refinance.
  • On-time payments: To qualify for an FHA Streamline, you must be up to date on your mortgage payments. That means you can’t have any payments that were more than 30 days late payments over the last 6 months and only one in the previous year before applying.
  • No cash back: You can’t convert your equity into cash with an FHA Streamline Refinance because it only allows up to $500 cash out. If you need cash to pay down debt or finance a major purchase, we recommend looking into an FHA cash-out refinance.
  • Net-tangible benefit: Refinancing has to benefit you in some way, but that benefit can vary based on what you’re trying to accomplish with your refinance. If your term is being lowered, there are limits on how much your payment can go up. Other benefits might be a lower rate, payment or switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
  • Closing costs: The refinancing process is quicker, but you’ll still have to pay closing costs on your loan. However, the closing costs may be cheaper than when you first purchased the home. That’s because you may not have to pay for an appraisal and there’s less to do with the title. However, keep in mind that you cannot roll closing costs into the new loan. You must pay them out of pocket. Some lenders may offer a “no-cost FHA Streamline,” which charges a higher interest rate in exchange for covering the closing costs.
  • Timing: At least 210 days must pass between the time your previous mortgage closes and you apply for your refinance. In addition, at least 6 months have to pass between the time your first payment was due and the date your FHA Streamline closes. You must also make at least six payments before applying for a new loan.

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What Documents Do You Need For An FHA Streamline Refinance?

An FHA Streamline Refinance requires less paperwork than most mortgages, but certain documents are required. Here’s the paperwork you’ll need to refinance your home:

  • Loan application
  • A current mortgage statement that shows at least 6 months’ worth of payment history
  • Contact information from your employer to verify your employment
  • At least 2 months’ worth of bank statements to show you can pay additional costs
  • Utility bills showing the home is your primary residence

Does A Streamline Refinance Affect Your Credit Score?

If you choose the non-credit qualifying option, the Streamline Refinance shouldn’t hurt your credit. If you choose the credit qualifying option, your score may decrease slightly, but it shouldn’t be anything substantial. That’s because a hard credit inquiry (pulling your credit report) can temporarily impact your score.

What Are The Rates For An FHA Streamline Refinance?

Your interest rate depends on a variety of factors, including the type of loan you take out and economic conditions. When the economy isn’t doing well, rates fall to help stimulate growth. On the other hand, when the economy is doing well, rates tend to increase. This also happens when inflation is high and needs help cooling.

Beyond the market conditions, the other factors that determine your rate are things like the amount of equity you have heading into the refinance. Your credit score and the amount of interest points you buy will also affect your rate. 

As of this writing, the average rate for an FHA 30-year fixed refinance with 2.125 points paid is 5.25%. Rates can change often, so it’s best to check out the current mortgage rates for Rocket Mortgage® regularly.

FHA Streamline Refinance Vs. Conventional Refinance Loan

Whether you choose an FHA Streamline Refinance or a conventional refinance loan, both options can help you lower your interest rate and monthly payment. One of the biggest differences between the two options is that a Streamline Refinance is for borrowers with an FHA loan.

A Streamline Refinance also allows you to refinance your FHA loan more quickly and with less stress. In comparison, a conventional refinance requires you to go through a credit check, get an appraisal, and verify your income.

A conventional refinance loan is a good option if you’re looking to refinance and take cash out of your mortgage because you cannot take out cash with an FHA Streamline Refinance.

Pros And Cons Of The FHA Streamline Program

As with any loan, there are pros and cons to the Streamline Refinancing program. Let’s look at some of the biggest advantages and disadvantages you should consider.

Pros

An FHA Streamline has the following benefits:

  • Lower rate: You may be able to lower your monthly payment.
  • Change loan options: You could go to a more stable option like a fixed rate.
  • Faster approval: Verification of employment, income credit and assets may be faster and there’s no appraisal necessary.

Cons

There are some downsides to an FHA Streamline:

  • You’ll have MIP: The mortgage insurance might be lower, but it’ll still exist for up to the life of the loan, depending on how much equity you have heading into the refinance.
  • You can’t take cash out: To do that, you’ll need to do a refinance with complete documentation.

Why Should You Consider An FHA Streamline Refinance?

An FHA Streamline Refinance program is a good option for FHA borrowers who want to lower their monthly payments. If your current FHA mortgage rates are higher than today’s rates, you could save money by refinancing. If you have an ARM and want to have a bit more stability and predictability, you could also refi into a fixed-rate mortgage. An FHA Streamline is also one of the only mortgage refi options that may allow you to refinance even if you owe more on the loan than your home is worth.

How To Get The Best Rate For An FHA Streamline Refinance

To qualify for the best rates on your FHA Refinance, it’s important to shop around among a few different lenders. Comparing quotes from multiple lenders can help you find the best deal on your loan.

The Bottom Line: A Streamline Refinance Can Help Lower Your Interest Rate Or Mortgage Payment

An FHA Streamline Refinance loan could be a valuable tool if you’re looking for ways to lower your monthly payment or interest rate. However, it’s important to do your research and contact a Home Loan Expert to determine if this is the right option for you.

Get approved to refinance.

See expert-recommended refinance options and customize them to fit your budget.

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Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage he freelanced for various newspapers in the Metro Detroit area.