FHA Streamline Refinance Rate Reduction Program

Refinance graphicThe FHA has multiple refinance options for homeowners with an existing FHA mortgage and non-FHA borrowers. We'll start with the Rate/Term Refinance Program.

Rate/Term Refinance Program

Homeowners who want to reduce their current interest rate on their mortgage or reduce the term (or both), should consider the Rate/Term Refinance Program. The Rate/Term Refinance Program is available to homeowners with an existing FHA mortgage, but non-FHA borrowers are also welcome to apply.

Second mortgages are eligible for inclusion in the rate/term refinancing if the unpaid principal amount of any junior liens is more than 12 months old as of the current mortgage payback date.

Rate/term refinancing expenses may be included into the new loan (i.e. title insurance, recordation and excise fees, etc.). Credit, employment, debt-to-income ratio, and asset verification are all required for refinancing. The FHA requires an appraisal. The The maximum loan amount for a Rate and Term refinance is 97.75 percent for principal residences that have been owner-occupied for previous 12 months, or owner-occupied since acquisition if acquired within 12 months.

With the rate/term refinance, the lender adds up the loan payoffs, closing and prepaid costs and divides the total by the appraised value. The ratio should be less than 97.75%.

Appraised Value 200,000
Loan payoff (1st) 100,000
Loan payoff (2nd) 50,000
Closing costs 3,000
Prepaid costs 3,000
TOTAL 156,000
Loan to Value Calculation 78%

The FHA Simple Refinance

The FHA Simple Refinancing program is similar to the Rate/Term refinance program, except it may not include any second or third mortgages in the new loan amount. Closing fees and escrow requirements may be included in the new loan under the Simple Refinance program. Credit, employment, debt-to-income ratio, and asset verification are all required for the Simple Refinance option. It's necessary to have a house appraisal. The current loan must be an FHA-insured loan.

The FHA Streamline Refinance

A streamline refinancing is a refinance of an existing FHA-insured mortgage that needs little borrower credit verification and underwriting. There are options for credit-qualifying and non-credit-qualifying streamline refinances.

The phrase "streamline refinancing" refers to the lender's need for little paperwork and underwriting, and does not indicate that there are no related costs.

The existing loan must be FHA-insured. Second and third liens are ineligible for debt consolidation. Existing subordinate financing* (may be retained if the subordinated lien or lien(s) is re-subordinated to the Streamline Refinance.

  • With streamline loans, there is no maximum combined loan to value (CLTV).
  • FHA Streamline loans do not need appraisals.

Credit Qualifying Streamline Refinance

Credit Qualifying Program is required when:

  • A modification in the mortgage term will result in a payment increase of more than 20%.
  • When a due-on-sale clause is implemented as a result of the deletion of a borrower or borrowers,
  • Additional criteria are detailed in the FHA handbook.

The borrower must have made all payments on all mortgages on all properties with fewer than six months of mortgage payment history during the month due.

The borrower must have paid all mortgage payments for all mortgages on all properties with more than six months of mortgage payment history.

Payments were made on time for the six months prior to case (loan) number assignment, and there was just one 30-day late payment in the preceding six months.

The borrower must have paid all mortgage payments secured by the subject property during the month due prior to the mortgage disbursement.

Non-Credit Qualifying Streamline Refinance

The Non-Credit Qualifying loan does not need credit, employment, debt-to-income, or asset qualification. There is no need to do a home appraisal!
A minimum of six months must have passed after the home was purchased.

For the six months before the assignment of a case number [new loan number], the borrower must have made all mortgage payments on the subject property on time, with no more than one 30-day late payment on any mortgage. During the month before the mortgage disbursement, the borrower must have made all mortgage payments guaranteed by the subject property. 

SOURCE: FHA Single Family Housing Policy Handbook 4000.1