What is an FHA Streamline Refinance?

A FHA streamline refinance is intended to lower the monthly principal and interest on an FHA insured first mortgage with no cash back to the borrower, unless there are minor adjustments (less than $250) at closing. This kind of refinance can come with or without appraisal; if no appraisal is performed, Form HUD 92564-VC is required.

With the exception of lead-based paint, repairs are not mandated by the FHA on streamline refinances with appraisals, but they can be mandated by the lender, in which case the borrower must pay for the repairs out of pocket.

A streamline refinance also requires a check of the Limited Denial of Participation (LDP) and General Services Administration (GSA) exclusion lists, but not of the Credit Alert Interactive Voice Response System (CAIVRS).

As part of the credit policy, the lender may ask for a credit report and/or a termite inspection, but these requirements are not mandated by the FHA for a streamline refinance (except in the case of “credit-qualifying” refinances, below).

The mortgage amount limits on a streamline refinance must not be higher than the statutory limits, unless it exceeds these limits with the up-front mortgage insurance premium (UPMIP) added on.

Streamline Refinance without an Appraisal

The lesser of the two values calculated below is the maximum insurable value of the mortgage:

a. The Original Loan Amount: the original principal balance of the current FHA-insured mortgage, as well as any up-front mortgage insurance premium being charged on the refinance.

b. Existing Debt: this is the sum of the existing FHA-insured first lien, closing costs, reasonable discount points and pre-paid expenses necessary to establish the escrow account, MINUS any refund of UFMIP.

The existing first lien can include interest that the servicing lender charged in cases where the payoff is not received by the first of the month. However, it may not include any delinquent interest, late charges or escrow shortages.

Only homes that are owner-occupied are valid for the mortgage calculation above. Although there are investment properties that may have been acquired as principal residences initially, the current borrowers can only streamline refinance these properties without an appraisal for the outstanding principal balance. The mortgage term will be 30 years or the remaining term plus 12 years — whichever is lower.

Secondary residences and investment properties can also be streamline refinanced, but only without an appraisal. Likewise, a property acquired as a principal residence may in some cases be rented out, but a streamline refinance on the property without an appraisal does not make the mortgage eligible to be assumed by an investor.

Streamline Refinance with an Appraisal (no credit qualifying)

Use the lesser of the two values calculated below to determine the maximum insurable value of the mortgage:

a. The appraised value, multiplied by the appropriate loan-to-value ratio

b. The sum of the existing FHA insured first lien, closing costs, reasonable discount points and the prepaid expenses necessary to establish the escrow account, minus any refund of UFMIP.

The existing first lien may include the interest charged by the servicing lender in cases where the payoff is not received by the first of the month. However, it may not include any delinquent interest, late charges or escrow shortages.

Credit-qualifying Streamline Refinances

This category of refinances is just like normal streamline refinances, but with an added assurance that the mortgage’s performance is sustainable. The lender has to prove that the remaining borrowers have good credit and can make payments on the mortgage, using documentation including credit and income checks and debt-to-income ratios.

A “credit-qualifying” streamline refinance may be necessary in cases when a change in the mortgage term leads to higher mortgage payments, or when the “due-on-sale” clause is triggered by the removal of one or more borrowers.

The maximum loan amount for credit-qualifying streamline refinances is determined by the same criteria explained above, depending on whether the refinance includes an appraisal.

Additional Information

• There is no need for borrowers to show proof of cash-to-close for streamline refinances.
• If a condominium project is approved, but later the approval is rescinded, the FHA can only insure streamline refinances without appraisals on the property.
• Non-credit-qualifying streamlines do not require any mortgage credit underwriting.
• The mortgage on a principal residence can be shortened through refinancing as long as there is an increase no higher than $50 on the new monthly principal and interest costs. As streamline refinances specifically serve to lower a borrower’s principal and interest payments, the amount the borrower pays for escrowed items does not get factored in.
• Most mortgages have to be current to qualify for this type of refinancing. However, if a mortgage is delinquent by only one or two months, the lender who does the refinance could pay the mortgage for the borrower to make it current. If this is done, the lender may not place any demands on the borrower to repay the funds used to end delinquency.
• The lender is allowed to perform a so-called “no-cost” refinance by charging a premium interest rate to pay for the closing costs and prepaid items of the borrower.
• Individuals can be added to the title on a streamline refinance without triggering the due-on-sale clause and with no need for a credit review.
• Subordinate financing can stay in place regardless of the indebtedness against the property. As long as any subordinate liens are made subordinate to the new FHA-insured mortgage, the borrower is under no obligation to satisfy any outstanding amounts on these liens.
• An appraisal that is conducted and then found to be against the best interests of the borrower can be ignored, and the borrower may proceed as if no appraisal has been made on the property.