FHA streamline refinancing rates & 2020 guidance

FHA_Streamline_Refinancing

The FHA streamline refinancing program helps current FHA homeowners lower their interest rate and monthly payment β€” it’s a quick and cost-effective way to refinance with lenient documentation and credit standards requirements.

Also, if your FHA loan is less than three years old, you may be eligible for a refund of the premium mortgage insurance upfront. This refund allows for the transfer of a portion of the original loan’s paid premium to the initial mortgage insurance premium of the current FHA streamline refinancing loan. At closing, this means less money is needed.

Is a refinancing streamline to FHA worth it?

In general, FHA streamline refinancing is worth it if you like a lower interest rate and monthly payment if there is a financial benefit to you. That’s true of all refinancing β€” if it won’t benefit you, then it’s probably not worth it.

Streamline refinancing offers some particular advantages compared with other types of refinancing loans, including:

  • No income documentation such as pay stubs and W2s is needed
  • Lower Interest Rates available
  • Closing times quicker than conventional refinances
  • No assessment required
  • Homes underwater qualify
  • Potentially eligible for partial refund from original loan mortgage insurance

Do I qualify for refinancing on a streamline FHA?

FHA streamline refinancing loans are available to homeowners with a strong payment history who already has an FHA loan. Homes which have lost their value and which are now underwater are also qualifying.

The most important qualification, however, is that refinancing has to give borrowers an advantage. This is called a net tangible benefit β€” FHA refinancing can be approved if the combined decrease in interest rates is at least 0.5% (see Net Tangible Benefit below).

Today, FHA refinancing rates

Current FHA rates are among historically lowest. According to the April 2020 Origination Report by Ellie Mae, the average 30-year FHA loan rate in April stood at 3.48 per cent.

The interest rate for refinancing that you will qualify for will depend on factors such as your credit score, type of interest rate and type of loan. To assess the particular FHA refinance rate to which you are entitled, you may need to talk to lenders. Compare quotes from three or four lenders or ensure you get the best rate and terms β€” the CFPB estimates that comparison shopping will save borrowers about $300 a year and thousands over the life of the loan.

How does refinancing streamline an FHA?

FHA streamline refinances are generally easier to qualify for than home buy loans. If you meet five key requirements then it is likely that your streamline refinancing will be approved. Those are the key requirements:

  1. History of on time payments

To qualify for an FHA streamline refinance, you have to show a history of on-time mortgage payments. However, if you have had a late payment you are not disqualified automatically. After your second most recent late payment you can rebuild your history moving forward and qualify for 12 months.

FHA streamlines payment requirements on refinancing loans:

If your mortgage is less than 12 months old then you must have paid all mortgage payments on time.
If your mortgage is 12 + months of age then no more than one payment will be allowed 30 + days late. Payments of the three months prior to requesting a loan must have been made on time.

  1. Net Tangible Gain

All FHA streamline refinances must result in the borrower being granted a Net Tangible Benefit (NTB) β€” the refinancing must boost the financial condition of the borrower as defined by the FHA. NTB is generally defined as reducing the “combined rate” of the borrower by at least 0.5%. (A combined rate is the credit interest rate plus the premium insurance rate)

For example, a homeowner has a current 4.5 percent interest rate and a 1.35 percent insurance premium with a combined 5.85 percent interest rate. If the homeowner refinances with an insurance premium of 1.35 percent with a 4 percent interest rate, so the current average rate of 5.35 percent is a decrease of 0.5 percent.

If you refinance a fixed-rate mortgage into another fixed-rate mortgage, the 0.5 percent “combine rate” reduction rule applies. If you are refinancing into (or out of) a one-year ARM or Hybrid ARM (3-, 5-, 7-, or 10-year ARM), otherwise specific NTB specifications may apply.

Net Tangible Benefit (NTB) Combined Rate Expectations

Current Loan TypeRefinance Loan TypeNTB Requirements
Fixed rateFixed rateDecrease at least 0.5%
Fixed rateOne-year ARMDecrease at least 2%
Fixed rateHybrid ARMDecrease at least 2%
Any ARM w/ less than 15 months in fixed periodFixed rateIncrease no more than 2%
Any ARM w/ less than 15 months in fixed periodOne-year ARMDecrease at least 1%
Any ARM w/ less than 15 months in fixed periodHybrid ARMDecrease at least 1%
Any ARM w/ greater than 15 months in fixed periodFixed rateIncrease no more than 2%
Any ARM w/ greater than 15 months in fixed periodOne-year ARMDecrease at least 2%
Any ARM w/ greater than 15 months in fixed periodHybrid ARMDecrease at least 1%
  1. FHA streamlines wait times

There’s a waiting period between closing the loan for the first time, and refinancing. So, you ‘re not eligible for an FHA streamline refinance if you’ve just closed your loan.

The criteria of the FHA streamlining the refinancing waiting time include:

  • You made at least six payments on your new FHA mortgage on time
  • It’s been six months since your first due date for payment
  • It’s 210 days since the day your current mortgage was closed

For instance, if your current FHA loan closed on November 28 , 2018, then on January 1, 2019, your first mortgage payment was due. You will refinance your first payment as soon as 1 July 2019 β€” 210 + days after closing and six months after closing.

  1. Small Credit Score

As part of the application for streamline refinance loan the FHA does not require a credit report. But most borrowers would need more. The FHA streamline refinancing system has a basic minimum credit score of 640. Some borrowers, however, can allow for a score between 600-620. If denied, shop around.

FHA streamline refinancing rates & 2020 guidance
Source: Report on Origination by Ellie Mae, December 2019
  1. Closure of FHA costs streamlines refinancing

Closing costs on streamline refinancing are generally the same as on other mortgages, except that there is no fee for assessment (unless you choose one). At closing, you might also need to pay a portion of property taxes and insurance.

For example, if property taxes for your jurisdiction are due in the coming months, lenders require you to pay that tax installment. Keep in mind, however, that you are going to receive a check from your current lender for taxes and insurance that you have paid on your current loan, but have not been paid out.

“If you’re short on cash, then ask your lender if they offer lender credits β€” for a slightly higher interest rate, you can use the profits from the loan to pay for closing costs. Or, if you have equity in your home, then with an appraisal you may be able to wrap closing costs into the new loan amount.”

Is there an FHA streamline refinancing in place to close costs?

Generally speaking, you can expect to pay between $1,000 and $5,000 in FHA to streamline the closing costs, although this can be higher or lower depending on your loan amount and other factors. You’ll have to provide 60 days of bank statements showing you’ve got enough money to cover any cost of closing out of pocket.

Your loan officer must have an estimation of the total amount of funds due. However, this estimated out-of-pocket sum could increase throughout the mortgage process. Be prepared to provide updated or supplementary bank statements to demonstrate that you have funds to cover the increased amount.

Note: Provide your lender with all the bank statement pages, even blank ones. Verify that your name , address and account number also appear on your statement. Online bank printouts often do not include your personal information, so you’ll need a mailed version of your statement or a PDF version.

Which documents do I need to streamline refinancing for an FHA?

Although there is minimal documentation required for the loan application in FHA streamline refinancing, that doesn’t mean there is no documentation. Here is a list of items you’ll probably need to apply for your streamline refinancing loan, including your:

  • Current hypothetical statement
  • Hypothecary note of current FHA loan showing your current interest rate and type of loan
  • Final statement of settlement (final HUD-1) or Deed of Trust with your current loan case number FHA
  • Contact information for the employer HR department (the lenders need to check your work, not your actual income)
  • Two months of bank statement showing you have sufficient funds to pay for any out-of-pocket costs
  • Contact details of homeowners insurance provider to get latest evidence of policy

Make the mortgage payment for your next month as soon as possible, too. This enables your lender to get evidence that your FHA mortgage is current. Your lender can require a greater or lesser sum than the things above.

Other things to notice regarding FHA streamline refinancing

While streamlining refinancing is generally easy to apply and approve, the FHA loan program has some things to consider.

Adjust the types and terms of the loans

The FHA has clear rules on what types of changes to loans are allowed. When using a streamline refinance, not every type of loan may be converted to another type or term of loan. Some of the most frequently asked questions about these adaptations are:

  • Can I have my 30-year loan refinanced to a 15-year loan? No. No. The FHA does not allow for a streamline refinance to reduce your loan term.
  • Can I have my 15-year loan refinanced to a 30-year loan? Hey. You must decrease your combined rate by at least 0.5 percent.
  • Can I have my ARM refinanced to another ARM? Hey. You can refinance an adjustable-rate mortgage (ARM) to another ARM (for primary residences only) using an FHA streamline refinancing.
  • Can I have my ARM refinanced to a fixed mortgage? Hey. Additional requirements, though, depend on the type of ARM and the original closing date. (See Section on Net Tangible Benefits.)
  • Can I refinance my hypothetical mortgage to an ARM? Hey. The requirement for a combined rate must be a 2 percent reduction.

Evaluations

There are two types of streamline refinancing β€” those with an assessment and those with no. Many people opt for the no-appraisal option, as the application process is quicker, simpler, and no equity is required.

So, why would someone get an assessment on a streamline refinancing from the FHA? As you can include just the closing costs on streamline loans with an assessment in the new loan sum. Otherwise, the closing costs must be paid out of pocket (or with a credit to the lender).

If you order an appraisal, make sure that you have sufficient equity in your home to cover the existing loan balance, closing costs and any interest due. If you have no equity in your property, it is best not to get an appraisal.

If you opt for an FHA streamline refinancing with no-appraisal, the maximum amount of the loan may include:

  • Current balance of principal
  • Interest payments worth up to one month
  • The new upfront mortgage insurance premium (if appropriate, cancel the mortgage insurance rebate β€” applies if FHA loan originated less than three years ago)

Primes in Hypothecary Insurance

There are two types of FHA loan mortgage insurance premiums β€” up front and annual. Upfront mortgage insurance premiums (UFMIP) are a one-time fee paid at the time you close the loan. All UFMIP types of FHA loans are 1.75 per cent on the amount of the base loan. In most cases, annual insurance premiums are paid over the lifetime of the loan. The percentages vary and depend on the amount of the base loan, the amount of your down payment and the term of the loan. (See FHA premium insurance tariffs.)

Hypothecary Insurance Refunds

You may be entitled to a refund of the upfront mortgage insurance you paid when you opened your existing FHA mortgage when you are refinancing a current FHA loan. Refunds are typically only available after the FHA loan has been refinanced into another FHA loan within the first three years.

The amount of the refund is determined by how long ago the current loan was opened and when the new FHA loan for refinancing closes. The sum of the refund decreases per month. If you refinance within 12 months, up to 60 per cent of your original mortgage insurance may be refunded. However, if you refinance after 30 months, you will receive only around 20 per cent.

FHA streamlines refinancing and condominium lending

During the last couple of years, many condominiums have lost their FHA eligibility. FHA streamline refinancing is available on condos approved at the initial opening of the loan but which have since lost their approval.

The exception: If an assessment is required to apply for the loan. The condo complex currently needs to be FHA-approved in this case.

FHA streamlines FAQs on refinancing loan

Is cash back on FHA streamline refinancing allowed?

Cash back on a streamline refinancing loan is not allowed. You will have to apply for an FHA Cash-out Refinance for that.

The FHA does allow a small amount of cash to go to the borrower, usually under $500. Some lenders are limiting the sum to $250 or less. The cash back can only result from incidental changes in closing calculations which often occur with all mortgages.

Can I use an FHA streamline refinancing to refinance my second home or investment property?

In most cases, as long as the property currently has an FHA loan, the FHA allows streamlining refinances on second homes and investment properties. Some lenders consider only streamline refinancing on primary residences. It is best to ask your lender about their particular rules.

Even, if the monthly payment on the new form of loan is that is an ARM, then you won’t be able to use a streamline refinancing β€” it’s not allowed on second homes and investment assets.

Can I add or remove streamline FHA borrowers?

The FHA allows withdrawal of a borrower from the original loan so long as one of the original lenders stays on the loan. However, if you want to “assign” the loan completely to another borrower, then you can not use a streamline refinancing of the FHA. In addition, borrowers can generally be added to the title without a review of income or assets. Though, explicitly check with your lender to see if they authorize it.

Can I refinance my completed 203k rehabilitation loan using an FHA streamliner?

However, the FHA allows this type of refinancing without an appraisal, your lender might need one. The finished work must be demonstrated with:

  • A Completion Certificate
  • A final release of an account for rehabilitation escrow
  • Completion of 203k closing process by the original lender

If my home needs repairs, can I use a streamline FHA?

The FHA does not require repairs on a home that is in sub-par condition as long as the transaction does not require an assessment. When you apply for an appraisal (or your lender needs one), you will be responsible for completing those repairs until acceptance of the loan.

Today, check FHA refinancing rates

A great option for current FHA homeowners to lower their interest rate and monthly payment is the FHA streamline refinancing. And, with lenient credit standards and documentation requirements, refinancing an FHA loan can be the quickest and most cost-effective option.