Streamline-refinance refers to the refinance of an existing FHA-insured mortgage requiring limited borrower credit documentation and underwriting. Streamline refinances are available under credit qualifying and non-credit qualifying options. “Streamline refinance” refers only to the amount of documentation and underwriting that the lender must perform, and does not mean that there are no costs involved in the transaction. The basic requirements of a streamline refinance are:
- The mortgage to be refinanced must already be FHA insured.
- The mortgage to be refinanced must be current (not delinquent).
- The refinance results in a net tangible benefit to the borrower. The definition of net tangible benefit varies based on the type of loan being refinanced and the new loan’s interest rate or term.
- Cash above $500 restricted on mortgages refinanced using the streamlined process.
Lenders may offer streamline refinances in several ways.
Some lenders offer “no-cost” refinances (actually, no out-of-pocket expenses to the borrower) by charging a higher interest rate on the new loan than if the borrower financed or paid the closing costs in cash. From this premium, the lender pays any closing costs incurred on the transaction. FHA does not allow lenders to include closing costs in the new mortgage amount of a streamline refinance. Investment properties (properties which the borrower does not occupy as his or her principal residence) may only be refinanced without an appraisal.