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FHA Streamline Refinance

The FHA permits borrowers to refinance an existing FHA insured mortgage with what is called a “FHA Streamline Refinance.”  The FHA has permitted lenders to offer streamline refinances on FHA insured mortgages since the early 1980s.

The reason this type of refinance is called a Streamline Refinance is because of the amount paperwork and related underwriting activity that is required from the lender is quite minimal.  It has nothing to do with how much money is involved in fees and property value.

There are 4 rules that must be met in order for the refinance to qualify for the streamline program.  They are:

  • The mortgage being refinanced must be FHA-insured prior to the Streamline Refinance application.
  • The mortgage being refinanced must be should be current on all payments.
  • The refinance must lower the monthly principal and interest payments on the mortgage being refinanced.
  • You may not take any equity as cash when using the streamline refinance process.

Lenders are allowed to offer streamline refinances that work in any of the following 3 ways:

  •  Lenders may offer “no cost” refinances which require no out-of-pocket expenses charged directly to the borrower. They do this by charging a higher rate of interest on the new loan. This interest rate is much higher than what the borrower would be charged than if the borrower financed or paid the closing costs in cash. Under this approach the lender pays any closing costs associated with the streamline refinance. Note that this approach must still provide a lower monthly principal and interest payment.
  • Lenders may also offer streamline refinance loans where the closing costs are included in the new loan amount.  However, this can only be done if there is sufficient equity in the property. The equity will be determined by an appraisal made in accordance with the current appraisal guidelines such as those imposed by the Dodd-Franks Act.
  • Lenders may offer streamline refinances without appraisals. However, the new loan amount cannot exceed the loan amount original FHA-insured loan being refinanced. This may seem weird but investment properties (i.e. properties that are not the primary residence of the owner) may only be refinanced without an appraisal.