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Streamlined Refinancing for FHA Mortgages

FHA has permitted streamlined refinances on insured mortgages since the early 1980’s. The word “streamline” refers only to the amount of documentation and underwriting that needs to be performed by the mortgage company; this does not mean that there are no costs involved in the transaction.

The basic requirements of a streamlined refinance are:

  • The mortgage to be refinanced must already be FHA insured.
  • The mortgage to be refinanced should be current (not delinquent).
  • The refinance is to result in a lowering of the borrower’s monthly principal and interest payments.
  • No cash may be taken out on mortgages refinanced using the streamline refinance process.

Companies may offer streamline refinances in several ways. Some companies offer “no cost” refinances (actually, no out of pocket expenses to the borrower) by charging a higher rate of interest on the new loan than if the borrower financed or paid the closing costs in cash. From this premium, the company pays any closing costs that are incurred on the transaction.

Companies may offer streamlined refinances and include the closing costs into the new mortgage amount. This can only be done if there is sufficient equity in the property, as determined by an appraisal. Streamlined refinances can also be done without appraisals, but the new loan amount cannot exceed what is currently owed, i.e., closing costs may not be added to the new mortgage with those costs either paid in cash or through the premium rate as described above. Investment properties (properties in which the borrower does not reside in as his or her principal residence) may only be refinanced without an appraisal and, thus, closing costs may not be included in the new mortgage amount.

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