Is an FHA Streamline Refi Too Good to Be True?

You’ve probably seen offers from lenders wanting you to do an FHA Streamline refinance, promising to slash your rate and monthly costs without needing to go through the typical underwriting process. 

If you’re wondering if an FHA Streamline refi is too good to be true, you’re not alone. It’s common for homeowners to be skeptical of claims to save them money with no appraisal, no income documentation, and an ultra-fast process.

The thing is that this program is 100% real. Sure, you still have to be wary of bad players. But here’s how to use this program safely.

Is the FHA Streamline Refinance a Real Program?

Yes, the FHA Streamline refi program is genuine and backed by the federal government. It’s a low-doc option that allows you to refinance your existing FHA loan with:

• No appraisal required
• No in-depth credit check
• No need to submit tax or income documentation

The FHA Streamline program is one of the fastest and simplest ways to refinance your home. You can even do a Streamline refi on a property that you’re no longer living at.

However, you must already have an FHA loan to qualify. You can still refinance out of other types of mortgages into FHA, but you’ll need to go through the standard underwriting process.

Who Is the FHA Streamline Refinance Right For?

Anyone with an FHA-backed mortgage with a rate higher than today’s market rates should consider an FHA Streamline refi.

Additionally, thanks to the loan program’s no appraisal and low-doc requirements, a Streamline refinance can be a convenient tool for borrowers who:

• Have experienced recent credit problems
• Owe more than their home is worth
• Currently have a high level of debt
• Have lost their job or seen their income drop

Because of the limited requalification required, you might still be approved even though your financial situation has changed dramatically since you purchased or last refinanced the home.

Why Does the FHA Offer the Streamline Refi Program?

The Streamline refi program is designed to help you lower your interest rate and reduce your monthly payments. Why is the FHA interested in saving you money? 

The answer is simple: the FHA isn’t a lender. All it does is insure loans that meet its minimum requirements. As such, it’s in its best interest for payments to be as affordable as possible for homeowners.

More affordable payments equate to fewer defaults, more borrowers being able to stay in their homes, and greater stability for the entire FHA program.

Why Does My Lender Want Me to Do a Streamline Refinance?

It may seem strange for your lender – or especially a different mortgage provider – to want to approve you for a Streamline refinance at a lower rate. Here are two reasons why.

1. Profit

As you may have guessed, mortgage lenders make money from fees and commissions when originating these loans. And they make more money faster, thanks to the minimal approval requirements. But the fact that the lender is making money doesn’t mean it’s a bad deal for you.

2. Low Risk

Why would any lender approve a loan without verifying your credit and income?

FHA Streamline refis are insured by the US government. So mortgage companies face little risk in making these loans as long as they follow FHA guidelines. Plus, thanks to the low doc requirements, the process is far easier and less time-consuming for lenders than with standard mortgages.

3. Improve Standing with FHA

Another factor that could cause a lender to push the Streamline refinance is their Compare Rate. The FHA uses this metric to assess lenders by the number of defaults on their loans relative to other mortgage companies in their area.

If a company issues too many defaulting loans, it could be in trouble with FHA.

Streamline refinances, however, are excluded from the Compare Rate calculation and can be an effective way for lenders to prevent existing – or new – loans from affecting their performance report.

Do I Qualify for an FHA Streamline Refinance?

It’s easy to qualify for an FHA Streamline refinance – much simpler than most other options. In the majority of cases, the requirements for a Streamline refi include:

1. Your current loan has to be with the FHA. No other types of mortgages are eligible for the FHA Streamline refinance.
2. It must have been at least 210 days since you closed on your loan, and you must have made at least six monthly payments.
3. You must have a timely repayment history. All mortgage payments for the property must have been on time for the most recent six months, and you can have no more than one 30-day late payment in the six months preceding.
4. If you’ve been granted mortgage forbearance, you can still qualify for a low-doc Streamline refi if you’ve made at least three on-time payments since completing your forbearance plan.
5. Refinancing must result in a Net Tangible Benefit, which typically means being able to reduce your total rate by at least 0.5%.

‘Net Tangible Benefit’ Test Prevents Unnecessary or Predatory Refinancing

The FHA Streamline refi program is designed to only allow lenders to issue loans that help homeowners. The mechanism for doing so is called the Net Tangible Benefit test.

For the majority of borrowers, those refinancing a fixed-rate mortgage into another fixed-rate mortgage, the Net Tangible Benefit requires at least a 0.5% reduction in their combined interest rate and annual mortgage insurance premium (MIP).

In March 2023, the FHA reduced its annual MIP cost from 0.85% of the amount borrowed to 0.55%. If you obtained your loan before this change, the lower mortgage insurance rate can help you meet Net Tangible Benefit requirements.

Taking this 0.3% MIP savings into account, you would only need to reduce your interest rate by 0.2% to pass the Net Tangible Benefit test with most loans.

Example #1: Your current FHA loan has an interest rate of 7.35% with an MIP rate of 0.55%. You can refinance your mortgage at an interest rate of 6.75% with an MIP rate of 0.55%. This would result in a combined reduction of 0.6% and meet the Net Tangible Benefit requirement.

	Current FHA Loan	FHA Streamline Refi	Rate Reduction
Interest Rate	7.35%	6.75%	0.6%
MIP Rate	0.55%	0.55%	n/a
Total Reduction			0.6%

Example #2: Your current FHA loan has an interest rate of 6.95% with an MIP rate of 0.85%. You can refinance your mortgage at an interest rate of 6.75% with an MIP rate of 0.55%. This would result in a combined reduction of 0.5% and meet the Net Tangible Benefit requirement.

	Current FHA Loan	FHA Streamline Refi	Rate Reduction
Interest Rate	6.95%	6.75%	0.2%
MIP Rate	0.85%	0.55%	0.3%
Total Reduction			0.5%

Example #3: Your current FHA loan has an interest rate of 7.15% with an MIP rate of 0.55%. You can refinance your mortgage at an interest rate of 6.75% with an MIP rate of 0.55%. This would result in a combined reduction of 0.4% and not meet the Net Tangible Benefit requirement.

	Current FHA Loan	FHA Streamline Refi	Rate Reduction
Interest Rate	7.15%	6.75%	0.4%
MIP Rate	0.55%	0.55%	n/a
Total Reduction			0.4%

You can also qualify for an FHA Streamline if you’re refinancing an adjustable-rate mortgage into a new fixed-rate loan. You won’t need to meet the 0.5% reduction rule, but your new combined rate can’t exceed 2% above what you’re currently locked into.

It’s also possible to shorten the term of your mortgage with a Streamline refi. You don’t need to meet the 0.5% Net Tangible Benefit test if you reduce your loan term by at least three years. However, your combined rate still needs to be lower, and your new payment cannot be over $50 more than before.

Choosing an FHA Streamline Lender

All FHA lenders must be approved by the US Department of Housing and Urban Development. This regulation helps to keep unscrupulous companies from taking advantage of borrowers. Plus, the Net Tangible Benefit requirement helps reduce the risk even further.

Still, not all lenders are the same. You will likely receive different rate quotes from various companies, and some may offer far better customer service than others.

How can you go about finding a reputable FHA Streamline refi lender? Your strategies should include:

• Checking for customer and industry-expert reviews of the company
• Looking for complaints filed with the Better Business Bureau or Consumer Financial Protection Bureau
• Expecting openness and an upfront disclosure of fees from mortgage brokers and loan officers
• Applying with multiple lenders and comparing their quotes and level of service 

A great FHA lender should generally be accessible and transparent and show expertise in Streamline refinances.

Frequently Asked Questions About the FHA Streamline Refi

Do you still have some questions about the FHA Streamline refinance program? Here are answers to a few of the most common inquiries:

Is the FHA Streamline Refinance a Scam?

No! The Streamline refinance is an actual program, and the FHA even has protections in place to help keep you safe from dishonest lenders. For example, your new loan must result in a Net Tangible Benefit – typically a 0.5% rate reduction – to be approved.

Do You Need an Appraisal for an FHA Streamline Refinance?

No, you do not need an appraisal to get an FHA Streamline refinance. This “no appraisal” requirement can save you hundreds of dollars in fees and speed up the refi process. Plus, homeowners who are underwater on their loan can get approved for a lower rate when other refi options would deny their application.

How Much Are Closing Costs for an FHA Streamline Refinance?

Like most FHA loans, the closing costs on a Streamline refinance will likely run from 3% to 5% of your loan total. You will have to pay FHA’s upfront MIP of 1.75% of the loan amount, but it can be financed into the loan. You may qualify for an upfront MIP refund if refinancing before your current FHA loan is three years old, which could reduce the amount you need to finance.

While FHA Streamline guidelines do not allow you to wrap your closing costs in with your loan, some lenders offer to reduce the burden in exchange for a slightly higher interest rate. This rate would still need to pass the Net Tangible Benefit test.

The FHA Streamline Refinance is NOT Too Good to Be True

The low-doc FHA Streamline refinance is a real program and can help existing FHA mortgage holders reduce their interest rates and slash their monthly payments, all without the hassle of a traditional refinance.

If you’re ready to refinance your FHA loan, check out the current refi rates and apply with at least three lenders to compare streamline quotes and find the best money-saving option for reducing your mortgage costs.