The FHA Streamline Refinance program is designed for people who have an existing FHA loan. It is the easiest and most straight-forward way to refinance an FHA loan, as borrowers may refinance without verifying assets or income. An appraisal is not necessarily required, depending on how much has been paid on the original loan balance. One of the greatest advantages of the FHA Streamline Refinance program, is it allows for an unlimited loan-to-value ratio. This means even homeowners who are extremely underwater on their home may be able to take advantage of lower interest rates.
Rather than verifying income, credit or assets, the FHA Streamline program relies on application data from the original FHA loan. The lender will then repackage the application and provide a new loan with a new interest rate.
More than 750,000 borrowers have utilized the program since 2008.
Despite its simplicity, an FHA Streamline refinance is not for every homeowner.
You must live in the home you are refinancing
Many homeowners hope to refinance their home loan to cash out equity to pay off other debts. While this strategy increases mortgage debt, it may make sense to do so, as mortgage debt has a lower interest rate than credit card or car loan debt.
Under an FHA Streamline loan, this cash out option is unavailable. HUD prohibits the homeowner to withdraw any equity while utilizing this program.
The FHA Streamline process is not without costs. Closing costs may reach several thousand dollars, as you must pay your mortgage broker and/or lender a transaction fee and recording fees. You will also need to pay the title company an administrative fee.
It is possible to roll closing costs into the new loan, but only if you agree to an appraisal on the home, and only if the new loan amount exceeds the original amount by 1.5%. If you complete an FHA Streamline refinance without an appraisal, you must pay closing costs out of pocket, or ask the lender if they will pay closing costs in exchange for a higher interest rate on the loan.