This article was originally published in 2009. It has been fully updated for 2013, to include the latest guidelines for FHA streamline refinance.
If you’re a homeowner in the hunt for a refi loan, you’ve probably heard about the FHA streamline refinancing program. But what is this program, and how does it work? What are the guidelines and requirements for borrowers? And what benefits does a streamline refinance offer when compared to a regular refi? Those are some of the things we will discuss in this lesson.
What is a Streamline Refinance Loan?
Let’s start with a basic definition. An FHA streamline refinance is a government-backed refinancing product reserved for homeowners who have an existing FHA-insured home loan. I’ll repeat that last part, because it’s a key requirement for the program. You must currently have a mortgage that is insured by the Federal Housing Administration, in order to qualify for FHA streamline refinancing.
There is typically less paperwork required than with a regular refi. That’s where the term “streamline” comes from — you don’t have to provide as much documentation as you would with a non-FHA refinance. That’s because the refinancing application pulls information from the original application you submitted when obtaining your current loan.
Additional program benefits, as of March 2013:
- Verification of employment is typically not required for FHA streamline refinance.
- Verification of the borrower’s income is typically not required.
- There is currently no credit-score requirement for this refinancing program.
- Additionally, a home appraisal is usually not required for FHA streamline.
That covers the benefits. Let’s move on to the program guidelines.
2013 Guidelines for FHA Streamline
Editor’s note: The following FHA streamline refinance guidelines were updated on March 12, 2013.
First and foremost, your current mortgage loan must be insured by the FHA. In other words, you must have used an FHA mortgage loan when you first purchased the home. If you’re not in this boat, there’s no reason to read any farther. It’s a hard and fast rule, and there’s no way around it.
Secondly, you need to be current on your mortgage payments. You must not have any late payments (by 30 days or greater) within the last 12 months, or since the creation of the loan if it’s less than a year old.
Additionally, refinancing must benefit you in some way. The Federal Housing Administration refers to this as the “Net Tangible Benefit” guideline. There are two ways to meet this particular guideline:
- If you lower your monthly payments (including principal and interest) by at least 5%, you’ve met the Net Tangible Benefit requirement.
- If you are switching from an adjustable-rate mortgage (ARM) into a more secure fixed-rate loan, you’ve met the Net Tangible Benefit requirement.
Note that you only have to meet one of these rules to satisfy the “benefits” aspect of FHA’s streamline refinance guidelines.
Lastly, you cannot take cash out when refinancing under this program. In other words, you cannot tap your home’s equity for cash. That’s just not the purpose of this program, so if you want to do a cash-out refinance you’ll have to look elsewhere.
On a side note, the FHA does offer a cash-out refinance product that allows homeowners to tap their equity. But it’s separate from the streamline program and has its own unique set of guidelines (including more documentation, credit checks, etc.).
Also worth knowing:
- The streamline refinance program can be used for both fixed and adjustable-rate FHA loans. Most homeowners refi into fixed-rate loans, for the long-term predictability they bring. But ARM options are available as well.
- FHA streamline refinance can be used with a 15-year or 30-year term. Some homeowners choose the longer term to reduce the size of their monthly payments. Others chose the shorter term to reduce the total amount of interest paid over the life of the loan.
- In most cases, there are no prepayment penalties to worry about when using this program. But check with your lender and/or loan servicer, just to be sure.
Summary of Key Points
We’ve covered a lot of information in this tutorial. So let’s recap the FHA streamline guidelines covered above:
- To qualify for this program, you must currently have an FHA-insured mortgage loan.
- You need to be current on your payments. No delinquency / default. No late payments for the last 12 months.
- The loan must result in the lowering of your monthly payments, or it must convert you from an ARM to a fixed-rate mortgage.
- You cannot pull cash out of your home with this program.
These are the minimum guidelines for FHA streamline refinance, as of the first quarter of 2013. There are other qualifying factors I haven’t mentioned here, because I don’t want to go too far into the weeds. That’s your lender’s job! Suffice it to say that if you meet the guidelines listed above, you might be a good candidate for this refinancing program.
How to Apply for the Program
If you already have an FHA loan, then your current mortgage company is probably an HUD-approved lender. So you should start by contacting them and asking if they offer FHA streamline refinance loans. If they don’t (for whatever reason), then you’ll need to find another lender that’s on the approved list. You can find such a lender through this section of the FHA’s website.
I hope this lesson has helped you understand your refinancing options under the Federal Housing Administration’s programs for homeowners. If you have any questions about this topic, I recommend visiting the HUD website. Good luck.
Disclaimer: This article explains the basic guidelines for the FHA streamline refinance program, as of March 2013. We make every effort to keep this information current. But the Federal Housing Administration changes their guidelines on a regular basis (especially in the wake of the housing crisis). Please visit the HUD website for the most current information on this program.