FHA Simplified Refinancing FAQs
What is an FHA Streamlining Refinance?
An FHA streamlining refinance involves replacing an FHA insured mortgage with another FHA loan that has a lower interest rate, a shorter term, or both. It is simplified because the new loan does not require an FHA assessment. This speeds up the process and reduces costs.
What is an FHA Credit Eligible Rationalization?
There are two types of FHA simplified refinancing: eligible for credit and non-eligible for credit. The ineligible option is about as simple as it gets – there’s no scoring, no credit check, and the lender doesn’t assess your debt-to-equity ratio, or DTI.
Streamlined credit-eligible refinancing still allows you to avoid an FHA assessment, but your lender will perform a credit check, thoroughly examine your ability to continue paying your loan, and calculate your DTI. If you want to make certain changes to your FHA loan when doing a simplified refinance, such as removing a borrower, you will need to choose the credit option.
Can I Get FHA Simplified Refinance If I Don’t Have an FHA Loan?
No, you must have an FHA insured mortgage to get an FHA streamline refinance. It is possible to refinance a non-FHA loan to an FHA loan, but the lender would require an appraisal, an income check, and a credit check, so this would not be considered “streamlined”.
Why switch from a conventional loan to an FHA loan? You can choose to refinance an FHA loan to get a 203 (k) refinance, which allows you to roll the cost of home improvements into the refi.
Can I Get Streamlined FHA Refinance With Another Lender?
Yes. While you probably want to get a quote from your current lender, you can shop around different FHA approved lenders to see which one will give you the best deal. In addition to the lenders we’ve highlighted above, you can search for a list of all FHA approved lenders on the HUD website.
What is the minimum credit score for an FHA simplified refinance?
In general, borrowers with credit scores of 580 or higher may qualify for FHA insured loans with down payments as low as 3.5%. Borrowers with credit scores of 500 to 579 may qualify for FHA loans with down payments as low as 10%. That said, lenders can set their own minimum credit scores for FHA loans, so you may need to check with multiple lenders if your credit rating is low.
With an FHA streamlining refinance not eligible for credit, a credit check is not necessary. Instead, the lender will use your mortgage payment history to assess your ability to pay off the new loan. You will need to have at least six months of on-time payments; in the previous six months, you cannot have had more than one late payment.
Can I Get Streamlined FHA Cash-Out Refinance?
No. The FHA’s simplified refinance program limits borrowers to withdrawing more than $ 500 in cash from the refinance. If you are looking to withdraw money from your refi, you will need to choose an FHA withdrawal refinance.
Do I Pay the Closing Costs on an FHA Streamlining Refinance?
Yes, you will need to pay the FHA closing costs including a new advance mortgage insurance premium. Closing costs cannot be factored into an FHA streamlining refinance, although you can use gift money or other sources of funds to help cover these costs (your lender will need to approve the sources) .
Is FHA Streamlining Refinancing a Good Idea?
Whether refinancing is a good idea depends on your particular situation. A requirement of any FHA streamlining refinance is that it has a “net tangible benefit” to the borrower.
For example, if you lower your rate while maintaining the same term, you will pay less interest overall – a net tangible benefit. On the other hand, if you lower your rate but extend your term, you could reduce your monthly payment but end up paying more interest over time. This scenario would not cut it for a streamlining FHA refinance.
To decide if an FHA Rationalization Refinance might benefit you, run the numbers with a refinance calculator. This can help you see how a better rate or a different term might impact your monthly payments and the total interest paid over the term of the loan. Also consider the time it will take you to break even – when your savings on the new loan are greater than your cost of obtaining it.