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FHA Streamline Refinance Rates and 2015 Guidelines
by Tim Lucas

The FHA streamline refinance program helps current FHA homeowners lower their rate and payment without most of the traditional refinance documentation.

It is a fast and cost-effective way to refinance that comes with lenient documentation and credit standards.

In 2015, the FHA streamline has become an even better value. FHA recently lowered its mortgage insurance premiums by 0.50%. Most borrowers can now drop their interest rate and their monthly mortgage insurance with one refinance transaction.

To further entice FHA mortgage holders, FHA offers upfront mortgage insurance premium (upfront MIP) refunds. A portion of the premium paid when the original FHA loan closed will be applied to the upfront MIP on the new FHA loan. Click here to see an upfront MIP refund chart and current guidelines.

FHA Streamline Advantages

Here are a few of the biggest benefits to the FHA streamline program:

Who Qualifies for an FHA Streamline?

The FHA streamline is available to homeowners who currently have an FHA loan. In addition, the borrower must have a good payment history. See the FHA Loan Payment History section for more details.

Lenders typically do not need an appraisal to approve an FHA loan. Homes that have lost value and are now underwater are eligible.

Borrowers must receive a benefit from refinancing. Lenders will approve an FHA loan when the payment will drop by at least 5%. This is a built-in protection for refinance applicants so they don’t complete an unnecessary refinance. For more details, see the Net Tangible Benefit section below.

FHA Streamline Refinance Rates

Current FHA streamline rates are some of the lowest in history. Mortgage backing agency Freddie Mac polls lenders weekly to determine an average rate. Their national rate recently hit a 20-month low.

But FHA streamline refinance rates are even lower than this average. Freddie Mac requests only the conventional (non-FHA) rate that lenders offer. According to loan software company Ellie Mae, FHA rates are about a quarter percent lower than conventional rates. As of the time of this writing, some lenders were offering FHA rates in the low- to mid-3s.

FHA Loan Payment History Requirements

To qualify for an FHA streamline loan, you must show a history of making mortgage payments on time. If you have had some late payments, you are not automatically disqualified. You can rebuild your history going forward, and qualify 12 months after your second most recent late payment.

FHA loan payment specific requirements are as follows.

FHA Streamline Waiting Periods

Many homeowners were surprised when FHA announced lower mortgage insurance for 2015. Many had just closed their FHA loan at higher MIP levels. The good news is you can use an FHA streamline to lower monthly MIP after as few as six payments.

The FHA streamline refinance waiting period is as follows.

Here’s an example.

  1. Your FHA loan funded (was closed/completed) on November 28, 2014.
  2. Your first payment was due January 1, 2015.
  3. You can refinance as soon as July 1, 2015 (210+ days after funding, 6 months after 1st payment).

Closing Costs

Closing costs on an FHA streamline are generally the same as with other mortgages, except that there is no appraisal fee if you opt not to get an appraisal.

Generally you can expect to pay between $1000 and $5000 in closing costs, but this amount could be higher or lower depending on your loan amount and other factors.

You may also need to pay a portion of property taxes and insurance at closing. For instance, if your jurisdiction’s property taxes are due in the next few months, your lender will require you pay that tax installment. Keep in mind, however, that you will receive a check from your current lender for taxes and insurance you paid to them but are not yet disbursed.

Lender Credits for Closing Costs

Often, the lender can give you a slightly higher interest rate and use the excess profit from the loan to pay for some or all of your closing costs. This eliminates the need for out-of-pockets expense. If you are short on cash, ask your lender if this is a possibility in your case.

If you have equity in your home, it may be possible to obtain an appraisal and wrap the closing costs into the new loan amount. See the next section on Appraisals.

Appraisals

There are essentially two types of streamline refinances: those with an appraisal and those without. The vast majority of people will opt for the no-appraisal option, simply because the process is quicker and cheaper, and no equity is required.

Why would someone get an appraisal on an FHA streamline? Because only streamlines with appraisals can include closing costs in the new loan amount. Otherwise, closing costs have to be paid out of pocket, or with a lender credit. See the section on this page about Closing Costs.

Be careful, however, if you order an appraisal. You have to have enough equity in the home to cover the existing balance of the loan, closing costs, and any interest due. In today’s housing market, many homes have zero equity or negative equity, which is why opting out of the appraisal so popular.

Maximum FHA Streamline Refinance Loan Amount

If you opt for a no-appraisal FHA streamline, the loan amount may include:

If you don’t think you have equity in your property, it’s best not to obtain an appraisal.

FHA Streamline Document Checklist

Here is a list of documents your lender may need to process your FHA streamline:

Also remember to make your next month’s mortgage payment as soon as possible. This will allow the lender the obtain proof that your FHA mortgage is current. Your lender may require more or less than the items listed above.

Mortgage Insurance

On June 11, 2012, FHA reduced its upfront and monthly mortgage insurance (MI) premiums for some borrowers. If your loan was endorsed by FHA on or before May 31, 2009, you are eligible for reduced premiums of .01% upfront MI and .55% monthly MI. Endorsed means that your loan was closed and that FHA insured your loan. In most cases, FHA loans needed to close a few weeks before this date to be endorsed by FHA in time. If you closed your FHA loan in May of 2009, have your lender pull a “case query” on FHA’s website to see when your loan was endorsed.

If your loan was not endorsed in time, you are subject to regular mortgage insurance premiums, which are 1.75% upfront and usually 1.30% to 1.35% of the loan amount per year, paid each month in 12 equal installments.

Unfortunately there is no appeal process or exceptions when it comes to the May 2009 rule. Those who just missed the cutoff must incur the substantially higher costs of regular MI premiums.

Mortgage Insurance Refunds

You may be entitled to a refund of the upfront mortgage insurance you paid when you opened your existing FHA mortgage. The refund amount is determined by how long ago you opened your mortgage, and when the new FHA streamline closes. Usually, refunds are only available if the FHA loan is refinanced with another FHA loan within the first 3 years.

Each month, the refund amount decreases. So if you refinance within 12 months, you may be refunded as much as 60% of your original upfront mortgage insurance. But if you refinance after 30 months, you will only receive about 20%. See an FHA MIP refund chart here.

Net Tangible Benefit

The FHA streamline must result in a Net Tangible Benefit (NTB) for the borrower. In other words, the refinance must improve the borrower’s financial position as defined by FHA.

Generally, the principle, interest, and mortgage insurance combined monthly payment must go down at least 5%. Sometimes the mortgage insurance cost will rise as a result of the refinance. But if the interest rate is lower, you may still meet the 5% reduction requirement.

The 5% reduction rule applies if you’re refinancing a fixed rate mortgage into another fixed. If you are refinancing into or out of a one-year ARM or Hybrid ARM (3, 5, 7, or 10 year ARM), there are different requirements:

Refinance Type

Net Tangible Benefit requirement

Fixed rate to one-year ARM

Interest rate must drop at least 2%

Fixed rate to Hybrid ARM

5% reduction in P&I+MI payment

One-year ARM to Fixed

Increase in interest rate no more than 2%

One-year ARM to One-Year ARM

5% reduction in P&I+MI payment

One-year ARM to Hybrid ARM

Interest rate must drop at least 2%

Hybrid ARM (during initial fixed period) to Fixed

5% reduction in P&I+MI payment

Hybrid ARM (during adjustable period) to Fixed

Increase in interest rate no more than 2%

Hybrid ARM (during initial fixed period) to one-year ARM

Interest rate must drop at least 2%

Hybrid ARM (during adjustable period) to one-year ARM

5% reduction in P&I+MI payment

Hybrid ARM (during initial fixed period) to Hybrid ARM

5% reduction in P&I+MI payment

Hybrid ARM (during adjustable period) to Hybrid ARM

Interest rate must drop at least 2%

No Longer Required to Close at the End of the Month

Up until January 2015, there was a little-known FHA rule stating you had to close your FHA refinance at the end of the month, or pay a double-interest penalty. That is no longer the case.

The FHA streamline refinance mid-month closing penalty has been eliminated. Applicants can close any day of the month. This will reduce the month-end bottleneck at FHA lenders, making your closing process easier.

Is Cash Back Allowed on an FHA Streamline?

No cash back to the borrower is permitted to be intentionally built in to the FHA streamline transaction. FHA does permit a small amount of cash, usually less than $500, to go back to the borrower. Cash back can only be as a result of incidental changes in closing costs calculations, which happens often with all mortgages. Some lenders limit the amount to $250 or less.

Minimum Credit Score for FHA Streamline Refinance

FHA does not require a credit report to be pulled. However, most, if not all lenders will require a credit report.

A standard “benchmark” minimum credit score for the FHA streamline program is 640. However, some lenders will allow a score of 620 or even 600. If you are denied, shop around. You might find a lender who approves your application.

Amount of Money Needed to Qualify for FHA Streamline Refinance

You will need to provide 60 days of bank statements showing enough money to cover any out-of-pocket closing costs. Your loan officer will work up an estimate of total funds due, which should give you a general idea about how much money you need in your accounts.

This estimated out-of-pocket amount might increase through the course of the loan. Be prepared to provide updated statements or additional statements to prove you have the increased amount.

An additional note about bank statements: provide all pages, even blank ones, to your lender. Also, make sure your name, address, and account number shows on your statement. For this reason, online bank printouts often are not sufficient since banks remove personal information from online printouts. The best statements are the ones you receive in the mail or the actual bona fide PDF bank statements that are often available for download on the bank’s online system.

FHA Streamline Loans and Condominiums

Many condominiums have lost their FHA eligibility over the past few years. However, FHA streamlines are available on condo complexes that were approved at the initial opening of the loan, but have since lost their approval.

The exception is when an appraisal is needed for the FHA streamline. In this case, the condo would need to be FHA approved currently. For more information about FHA and condos, see our blog post about this subject. SEE MY MORTGAGE INSIDER WEBSITE FOR MORE INFORMATION

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