FHA Streamline Refinance Loans: Expert Advice

October 27, 2021

When you start thinking about refinancing your home loan, the priorities you have going into the application process are very important when it comes to deciding what kind of refi to choose. Do you need a lower interest rate on your FHA home loan? Is your priority a lower monthly payment? Some look to the refi loan process to get out of an adjustable-rate mortgage. Do you need to refinance before your interest rate gets adjusted again?

Good motivations to consider refinancing one and all. And there is a LOT of advice online about what to do and what consumers need to know.

By-The-Numbers Refinance Loan Information

It is true that FHA Streamline Refinance loans are for existing FHA borrowers only. And it is also true that FHA Streamline Refinance loans typically require a “tangible benefit” from the refi transaction. That can include a lower rate, a lower monthly mortgage loan payment, etc.

On paper, you will see that FHA Streamlines have no FHA-required credit check. They also have no FHA-required appraisal. And many mortgage loan websites will remind you that the participating FHA lender is free to require those anyway. These are common issues surrounding this type of refinance loan.

And you’ll also read on any finance blog how pulling equity from the home in cash with this type of refinance loan is not permitted.

Some Not-So-Obvious Advice

Here’s some expert advice you may not find on other lending blogs: the FHA loan rules in HUD 4000.1 permit a borrower to apply for an FHA Streamline refinance loan and be approved even if the new loan actually winds up costing more than the old loan in terms of interest rates and/or monthly payments.

There is a lot written about how an adjustable-rate mortgage that gets refinanced into an FHA fixed-rate mortgage could actually have a higher rate than you were paying previously. The fixed rate is considered the benefit, not the interest rate itself.

But less well-known? Less discussed? FHA Streamline loans allow the same kinds of add-ons to the mortgage as “ordinary” refinance and purchase loans--specifically the FHA Energy-Efficient Mortgage which allows extra loan funds to pay for approved energy-saving upgrades to the home.

Add-Ons Cost Money

This add-on may increase your mortgage payment and if the overall amount increases by too much the lender may require a credit-qualifying FHA Streamline instead of the no-credit-check FHA Streamline option. Could your lender approve the loan but without add-ons if they increase the payments too much otherwise? Lender standards will apply.

One Last Thing

One thing not discussed often--FHA loan rules in HUD 4000.1 state that a borrower who was approved for forbearance is technically allowed to apply for a non-credit-qualifying FHA Streamline Refinance loan as long as the borrower meets the following requirements when the FHA loan case number is issued:

The borrower has completed the forbearance plan and;Has made at least three consecutive mortgage payments within the month due on the Mortgage since completing the forbearance plan.

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