An FHA Streamline Refinance is the shortcut FHA borrowers use when rates drop after they buy. It replaces your current FHA loan with a new FHA loan, and because FHA already insures your home, HUD skips much of what a new purchase loan requires. In most cases there's no appraisal, and the non-credit-qualifying version doesn't re-verify your income.
If you're buying with FHA now, this is one of the options you keep for later. A buyer who closes at one rate isn't stuck with it if rates fall.
What HUD requires
- An FHA loan already in place. The program only refinances an existing FHA-insured mortgage.
- Seasoning. At least six payments made, six months since the first payment due date, and 210 days since closing.
- A recent payment history the lender can accept. HUD's rules look at your last 12 months of mortgage payments, and on-time payments keep the approval simple.
- A net tangible benefit. The new loan has to help you. Going from a fixed rate to a fixed rate, the combined rate (interest rate plus annual MIP) must drop at least 0.5 percentage points. Moving from an adjustable rate to a fixed rate, or shortening the term, can also qualify under HUD's tests.
- No cash out. The new loan pays off the old one and doesn't hand you any of your equity.
Your property value isn't re-checked in the usual version, so a home that hasn't gained value since you bought it can still be refinanced.
A worked example on a $290,000 FHA loan
Take a sample FHA loan of $290,000, upfront premium included, written at 6.75%. That rate is made up for this example. Principal and interest is $1,880.93 a month. After 24 payments the balance is $283,603.46, and the buyer can refinance at a 5.75% rate on a new 30-year term, with closing costs covered by a lender credit.
The new loan starts from that balance plus a month of interest ($1,595.27), subtracts HUD's refund of 34% of the first upfront premium ($1,695.82 at month 24), and adds a new 1.75% upfront premium. That works out to $288,464.21, rounded here to $288,500.
| Before | After | |
|---|---|---|
| Rate | 6.75% | 5.75% |
| Combined rate with 0.55% annual MIP | 7.30% | 6.30% |
| Principal and interest | $1,880.93 | $1,683.61 |
The combined rate falls 1.00 point, double HUD's 0.5-point test, and principal and interest drops $197.32 a month. The refund credit only applies when you refinance into a new FHA loan within three years of the original one, and it shrinks each month, so a refinance in year one gets more of it back.
Keeping the option open
Make every payment on time from the first month, since late payments in the last year can block the refinance. Keep your closing documents and your loan number handy. When rates move, a quick rate check tells you whether the drop clears HUD's 0.5-point test.
Use the mortgage payment calculator to compare your current payment with a lower rate. For a refinance check on an FHA loan you already have, or a purchase you're about to make, call AAA Capital Funding at 888-601-8344.