FHA streamline refinance refers to a mortgage refinancing program backed by the Federal Housing Administration (FHA). “Streamline” refers to the reduced documentation and underwriting requirements. An FHA streamline refinance loan requires less credit documentation from the borrower — and is typically processed faster than conventional home refinancing loans.
What is an FHA Loan?
An FHA loan is a mortgage that the FHA insures. FHA loans are not dispensed through the FHA directly. Instead, they are issued through an FHA-approved mortgage lender. An FHA loan does the following:
- Has options for borrowers with income and credit scores of all levels
- Has a lower minimum down payment requirement
- Can be a strong choice for anyone in the early stages of their financial life or are working to actively improve their financial health.
River City Mortgage is an FHA-approved lender. That means we build on our comprehensive understanding of FHA loan programs to help you navigate the requirements and qualify for an FHA loan and streamline refinance loan options.
How does an FHA streamline refinance loan work?
An FHA streamline refinance loan is structured around the fact that you had already met the FHA loan requirements when you bought your house. The thinking goes like this: you were eligible when you first applied, so the FHA considers you still eligible for another FHA mortgage loan.
Because you provided documentation with your first loan, you have less paperwork and documentation to submit this time around. While credit checks and home appraisals can be requested, they aren’t required for most borrowers.
To get approved for an FHA streamline refinance loan, borrowers are required to meet several requirements, including:
- Your current home loan must be an FHA-backed mortgage.
- All mortgage payments up to date: no missed, late, or incomplete payments, and there can’t be any back payments you need to catch up on
- Refinancing your mortgage must have a “net tangible benefit.” This might sound complex, but it simply means refinancing your current mortgage must save you money. The FHA looks at the combined total of your mortgage interest rate and MIP. If it has been reduced by at least 0.5 % or your mortgage’s term has been shortened, then there is a “net tangible benefit.”
- Your new mortgage cannot exceed the amount of your current mortgage.
- Your mortgage must be at least six months old, and you are required to have made all payments in full and on time for at least six months.
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Benefits of an FHA streamline refinance
FHA streamline refinance loans offer a number of benefits to borrowers.
No need for a home appraisal
Most borrowers don't need to get a new appraisal done on their home. The home appraisal used with your initial mortgage is considered a valid representation of your home's current value and condition.
Less documentation is required to meet eligibility
One of the most popular benefits of an FHA streamline refinance loan is not having to provide vast amounts of documents that confirm your income situation. Because you provided income verification when you applied for your first FHA home loan, you don't have to repeat the process now.
The FHA asserts that since you met the eligibility requirements initially, you are still considered to meet those eligibility requirements.
Get a lower interest rate
Choosing to refinance your mortgage now, means you can swap your higher interest rate for today's historically low interest rates. A lower interest rate can reduce the amount of your monthly payment, saving you money.
Don't pay closing costs on an FHA streamline refinance
With an FHA streamline refinance, you can choose a “no-cost” option of a slightly higher interest rate and have your FHA-approved lender pay your closing costs.
If you'd like to keep a lower interest rate, a “low-cost” refinance is a good choice. Because an FHA streamline refinance is less complex than other loan refinancing programs, it has fewer associated costs, like paying for a home appraisal.
Get approved for an FHA streamline finance quicker than conventional refinancing
The FHA streamline refinance does not require credit score or credit history checks when considering a borrower's eligibility. However, some FHA-approved lenders might need to look at your credit information.
When it comes to credit inquiries, there are two types: hard and soft.
- A hard credit check typically happens when you apply for a large loan, and the lender wants to verify that you are eligible for loan approval. This type of credit check is noted on your credit report. It alerts other potential lenders that you are considering a large purchase.
- A soft credit inquiry happens when a potential lender reviews your credit report to get an overview of your credit situation. Soft inquiries aren't added to your credit report.
Hard credit checks act as a timeline, alerting potential lenders of any new credit you may have applied for. Because they tell lenders you were looking for more credit, it could be a factor for some potential lenders.
It's important to remember that no two credit reports are identical and whether a hard credit check will negatively impact your credit history, it can vary from person to person.
Next Steps to Getting an FHA Streamline Refinance Loan
Refinancing your home through an FHA streamline refinance loan can have numerous advantages. But it's important to remember that not every option is perfect for every family. A selection that's perfect for your family might not be the strongest choice for your neighbor.
That's why we'd love to connect. We want to sit down with you and go over all the FHA streamline pros and cons and help you choose the best mortgage product for your particular financial situation.
We're here to answer any questions you have about FHA streamline refinance, any home-buying questions you have, or we can provide you with a current rate quote. Get in touch with one of River City Mortgage’s regional loan officers today.