Benefits of FHA Streamline Refinance

By Stevie Duffin Updated on 7/20/2017

Homeowners with mortgages insured by the Federal Housing Administration (FHA) have a unique refinance option, known as the FHA streamline refinance. Unlike the standard FHA refinance, the streamline variant requires significantly reduced up-front costs and processing time, making it a beneficial option for those who qualify.

No Appraisal Required

When performing a conventional refinance or a standard FHA refinance, the lender will order an appraisal on the borrower’s property to ensure that the value of the home is greater than the current loan amount. However, with an FHA streamline refinance, the lender does not require this appraisal, as he or she simply uses the original appraisal performed on the home at the time of purchase. Consequently, borrowers will immediately save $400 to $500 on the cost of the appraisal.

This characteristic provides borrowers with an additional benefit: the ability to refinance with a high loan-to-value ratio (LTV) or negative equity; with no appraisal required, borrowers can still refinance regardless of their current LTV, despite many refinance loans disqualifying borrowers with excessive LTV ratios. 

For instance, if the value of the property has drastically decreased such that the mortgage loan exceeds the home value, borrowers can still refinance to secure lower mortgage rates and reduce their monthly payments.

No Verification

When applying for an FHA streamline refinance, borrowers generally do not need to submit to the standard verification process in terms of income, employment, or credit score. Essentially, in order to perform this refinance, borrowers must have a clear payment history with no missed payments; however, with this requirement satisfied, the lender may not need any paperwork for risk assessment and verification, translating to significantly less stress for homeowners.

Less Time Consuming

During the typical refinance, the process of ordering and conducting an appraisal can take several weeks to complete. With no appraisal requirements, FHA streamline refinance loans can be finalized much faster than standard refinances. 

Additionally, without having to verify and assess borrowers’ credit scores, income, and employment history, lenders can complete the refinance loan within a relatively short time-frame, especially when compared with the time required to process standard refinance applications.

Lower Closing Fees

With no appraisal necessary and a significantly reduced verification process, borrowers can expect to pay much less for FHA streamline refinances than the standard FHA refinance or a conventional refinance loan.

Furthermore, with the new increases to FHA private mortgage insurance (PMI) fees, the Federal Housing Administration adjusted the pricing for FHA streamline refinances, substantially reducing these charges for refinances that replaced loans acquired prior to March 31, 2009. 

With these changes in place, borrowers will pay a minor up-front premium of 0.01% of the loan with annual premiums of 0.55%, as compared to a standard 1.75% up-front fee with a 1.25% monthly premium. Accordingly, borrowers with FHA mortgage loans obtained prior to this date should certainly take advantage of these reduced PMI fees, which can only be achieved through an FHA streamline refinance.

Minimal Repairs Necessary

According to FHA guidelines, homes refinancing with FHA loans must meet certain criteria regarding the home’s condition in order to qualify. While most of these repairs would be common sense things to fix for safety purposes, in some cases these criteria can impede borrowers from refinancing. With an FHA streamline refinance loan, borrowers need only satisfy the most basic home condition requirements to qualify for the loan, including removing any lead-based paint from the home. Moreover, with minimal repairs to complete, the closing process will be much quicker.

Reduced Mortgage Payments

As with any refinance program, one of the most advantageous elements of the FHA streamline loan is that it allows borrowers to alter the terms of their current mortgage. While some may take a higher interest rate in order to change from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM), borrowers will typically refinance in order to acquire lower mortgage rates, thereby reducing their monthly mortgage payments and decreasing the cost of the loan overall. 

In either case, the net tangible benefit can be invaluable, especially for borrowers that obtained their original mortgages while mortgage rates were much higher than current levels.

Considering these benefits, FHA streamline refinance loans are among the most advantageous refinance loans currently available. While not every borrower can secure these loans, those who qualify can save a lot of time, money, and effort in foregoing the standard refinance procedures and costs.

Qualifications and Requirements for FHA Streamline Refinances

• Payment History – In order to qualify for this refinance program, borrowers must not have any missed or late payments within 12 months prior to loan application.

• Property Ownership – Borrowers must own their property for a minimum of 6 months before applying for an FHA streamline refinance.

• FHA-Approved Lender – For those who would like to shop around rather than staying with their original lenders, only lenders approved by the Federal Housing Administration can offer this refinance loan.