FHA Streamline Refinance
FHA has a unique program that allows borrowers to refinance their existing FHA mortgage into a lower interest rate loan while “streamlining” the process to minimal documentation requirements. The “streamline” is referring only to the amount of documentation and underwriting that is required and performed by the lender, and does not mean that there are no costs involved in the transaction. The basic requirements of a streamline refinance are:
- The current mortgage must be an FHA insured mortgage.
- The mortgage must be current (not delinquent).
- The new payment must reflect at least a 5% decrease in current payment.
- Cash-out is not allowed for any FHA Streamline loan.
Lenders may offer streamline refinances in several ways. Sometimes a lender may offer a "no cost" refinance. This is done by charging a higher rate of interest on the new loan than if the borrower financed or paid the closing costs in cash. When the lender received a premium, they use some of these funds to pay any closing costs that are incurred on the transaction.
Lenders may offer streamline refinances and include the closing costs into the new mortgage amount. This can only be done if there is enough equity in the property, as determined by an appraisal. Streamline refinances can also be done without appraisals, but the new loan amount cannot exceed the original loan amount. This makes it difficult but still is possible in some instances.