What is Streamline Refinancing? Benefits, rules and rates

The Streamline Refi is one of the best refinancing options

FHA, VA, and USDA mortgages make up a massive part of the home buying market.

But homeowners with these loan types aren’t refinancing nearly as much as those with conventional loans via Fannie Mae and Freddie Mac.

That seems odd, given that government-backed mortgages often have access to lower interest rates. And FHA, VA, and USDA loans can use the Streamline Refinance — a faster and cheaper way to lower your rate.

If you have an FHA, VA, or USDA loan, here’s what you should know about the Streamline program.

In this article (Skip to...)

• What is a Streamline Refi?
• Benefits
• Eligibility
• Reasons to use a Streamline Refi
• FHA Streamline Refinance
• VA Streamline Refinance (IRRRL)
• USDA Streamline Refinance
• Why aren’t more people using Streamline Refis?
• Streamline Refinance rates

What is Streamline Refinancing?

A Streamline Refinance is a speedy, uncomplicated way to refinance a government-backed mortgage and get a lower interest rate.

Streamline refinances are available for homeowners who currently have:

• FHA mortgages
• VA mortgages
• USDA mortgages

If you qualify, the Streamline Refinance program could help you drop your mortgage rate and payment with very little paperwork and lower upfront costs.

Benefits of a Streamline Refinance loan

The Streamline Refinance program has unique benefits.

“A conventional refinance typically takes longer than a streamline or low-doc refinance because it involves more paperwork and an appraisal,” explains Brian Martucci, a finance expert with Money Crashers.

“With a Streamline Refi, a new appraisal is usually not required. And you probably don’t have to provide credit and income documentation like you would with a conventional refi,” he continues.

“A Streamline Refinance loan is faster, has lower minimum requirements, and involves typically only service-level processing” —Dennis Shirshikov, Real estate analyst

Dennis Shirshikov, a real estate analyst, agrees.

“A conventional refinance loan is a lot like getting a mortgage. It requires a large amount of paperwork, inspection, and other checks to ensure that the property can still hold its value,” notes Shirshikov.

“A Streamline Refinance loan is faster, has lower minimum requirements, and involves typically only service-level processing.”

Streamline Refinance eligibility

​Streamline Refinance programs have minimal underwriting. You typically don’t have to provide employment or income verification; and there’s no home appraisal required.

However, borrowers hoping to use a Streamline Refinance still have to meet basic mortgage loan requirements.

Rules vary a bit by program — and mortgage lenders can set higher standards — but generally, you’ll need:

• An on-time payment history
• No more than one late payment in the last year
• A “net tangible benefit” — meaning there will be a significant reduction in your interest rate, or you’ll have a safer mortgage loan (like switching from an adjustable rate to a fixed-rate loan)

Technically, Streamline Refinance programs do not require a credit check, either. But many lenders will pull a credit score and report anyway.

Reasons to use a Streamline Refinance

There are a number of good reasons to use a Streamline Refinance. The most obvious is to secure a lower interest rate and lower monthly payment. But there can be other benefits, too.

You can use a Streamline Refinance with little or no home equity

One of the biggest benefits of Streamline refinancing is that it doesn’t require a new home appraisal.

Homeowners can refinance a VA, FHA, or USDA loan using this program even with a high loan-to-value ratio — or if their mortgage is underwater, meaning they owe more than the property is worth.

But, like we mentioned above, some lenders will require a new appraisal, even though it’s not written in the official Streamline refinancing guidelines.

So if your loan-to-value ratio (LTV) is a concern, look for a mortgage lender that won’t require re-verification of your home’s value.

Closing costs are reduced

Going without a home appraisal means you can refi with little to no home equity. And it means you save money on closing costs, too.

Instead of paying for a home appraisal before closing, your loan officer will use the home value from your current loan to measure your loan–to–value ratio.

Use it to get rid of an adjustable-rate mortgage

If your current home loan has an adjustable rate, you could use the Streamline Refi program to open a new mortgage with a fixed rate.

With today’s mortgage rates near all-time lows, it’s a good time to lock in a fixed-rate mortgage for the long haul.

That way, you can be sure your low rate and monthly payments will never change — even if interest rates rise in the future.

You don’t need perfect finances to qualify

Streamline refinancing does not pull your credit score, so lower credit scores won’t result in higher interest rates — though some lenders may have their own in-house credit minimums.

You won’t have to provide income or employment verification either, allowing you to refi even if you’ve suffered a loss of income.

As an added bonus, since a Streamline Refinance is a government-backed loan, lenders are not required to calculate your debt-to-income ratio, meaning you may be able to refinance even if your DTI has increased.

FHA Streamline Refinance program

Homeowners with an existing FHA loan may be able to pursue an FHA Streamline Refinance loan.

The Federal Housing Administration has a few basic requirements to qualify for an FHA Streamline Refi.

• You need to be current on your mortgage payments
• The loan must be at least six months old
• The refinanced loan cannot exceed the original loan amount
• Only primary residences can be refinanced – no vacation homes or investment properties
• Closing costs can’t be rolled into the loan balance, and you’ll have to pay the FHA mortgage insurance premium

Clifford Rossi, a finance professor at the University of Maryland, says the FHA Streamline Refinance may also require a credit check and an assessment of your income and capacity to repay the loan.

But in some cases, even those minimal steps won’t be necessary.

“[Some] borrowers may be eligible for a non-credit qualifying loan that bypasses this assessment and enables them to gain a lower rate than the credit-qualifying version,” says Rossi.

FHA Streamline Refinance does not eliminate MIP

If you pay a mortgage insurance premium (MIP) on your current FHA loan, you might wonder whether you can get rid of it using a Streamline Refinance.

Unfortunately, FHA Streamline refinancing can’t be used to eliminate mortgage insurance. The new loan will still require an upfront FHA mortgage insurance premium, as well as annual mortgage insurance.

However, if you refinance your existing FHA mortgage within the first 3 years via the Streamline Refinance program, you may be eligible for a partial refund of the upfront mortgage insurance premium paid on your current loan.

Talk to your loan officer about your eligibility for an FHA MIP refund.

No cash out with a Streamline Refinance loan

Taking cash out of your home equity is not an option with an FHA Streamline Refinance loan.

However, the Federal Housing Administration does offer an FHA cash-out refinance.

VA Streamline Refinance (IRRRL)

Veterans, active service members and surviving spouses with existing VA loans can opt for an Interest Rate Reduction Refinance Loan (IRRRL). This loan is also known as the VA Streamline Refinance.

With the VA IRRRL, homeowners who have current VA loans may be able to refinance into a lower rate with minimal paperwork and no appraisal.

That said, lenders do set their own requirements. Some may require a credit check and appraisal. So ask about these policies before choosing a VA IRRRL lender.

As an added benefit, you can roll your closing costs into the new loan or accept a slightly higher interest rate to cover these costs.

VA homeowners may be able to refinance with little or no upfront cost.

USDA Streamline Refinance

For those with USDA rural housing mortgages, the streamlined-assist refi is a program that promises less paperwork and processing than a standard mortgage application.

You can benefit from significantly reduced fees and simplified eligibility requirements if you are an existing USDA borrower.

Unless you receive a subsidy during your loan term, you won’t need to get a new appraisal. No credit review is required either, but the lender must verify that your mortgage was paid for 12 months before your refi application.

To qualify for the USDA Streamline Refinance, your new loan must have a monthly mortgage payment savings of at least $50, or $600 annually.

Why aren’t more borrowers using Streamline Refinances?

Government loans are still incredibly popular. In fact, Ginnie Mae — an agency that backs government mortgages — reported a record level of government home loans securitized in 2021.

But amazingly, people with government loans aren’t refinancing at nearly the same levels as borrowers with conventional loans.

ICE Mortgage Technology’s origination report shows that in September 2021:

• FHA loans were 77% purchase and only 23% refinance
• VA loans were 63% purchase and only 37% refinance
• Conventional loans, on the other hand, were 41% purchase and 58% refinance

So, why are so many conventional borrowers taking advantage of historic low rates while those with government-backed loans aren’t?

There are several possible reasons.

1. Homeowners might not know about the Streamline Refinance program

Likely, one big reason homeowners don’t use the low-doc Streamline Refinance is simply that they don’t know about it.

“There has been little done to make people aware of the Streamline Refinance,” says Shirshikov.

“Unfortunately, most of the people that qualify for these loans are not out there learning about mortgage options regularly. Instead, they often rely on their bank representative to understand and inform them about these options,” he adds.

Streamline Refinance options are often easier to qualify for than a traditional mortgage refinance.

So if you hear about the program, it’s worth asking your lender whether you’d qualify for a lower rate.

2. Streamline Refinances still have closing costs

Another reason why Streamline Refi activity isn’t higher may have to do with closing costs involved.

With an FHA Streamline Refi, for example, only the upfront mortgage insurance can be rolled into the loan. All other fees have to be paid on the closing date.

“That’s a big turnoff for many borrowers,” says David Dye, broker/CEO of GoldView Realty.

It leaves just two options: “Either the borrower has to bring in cash to cover all those expenses, or the lender has to give the borrower a higher interest rate to cover the fees. A higher rate defeats the purpose of a refinance.”

Note: The VA Streamline Refinance (IRRRL) is more forgiving and allows most closing costs to be rolled into the loan.

3. Lower credit borrowers may have fewer refinance options

Rossi points toward one other reason FHA refinance numbers in particular might be low.

“The credit profiles of FHA borrowers tend to be lower than for [conventional] loans,” he explains.

“As a result, FHA borrowers tend to refinance at lower rates ... because those with better credit histories have more opportunities available from lenders.”

That said, some lenders don’t require a credit check for a Streamline Refinance.

Those with borderline credit should shop around for a lender that offers Streamline refinancing with no credit verification.

Do you qualify for a low-doc Streamline Refinance?

Don’t let any of the aforementioned rules stop you from attempting to get a Streamline Refinance of your government loan.

To increase your chances of qualifying for a Streamline Refi, do your homework.

• Check your three credit reports for free at AnnualCreditReport.com. Work to correct any errors or problems you see there
• Check your credit score, often available for free through your bank or credit card company
• Make sure you're current on mortgage payments. Streamline refinance programs require you to have reliable payment history on your loan. Check your statements to make sure you don’t have late or missed payments

And remember, you don’t have to refinance with your current mortgage company.

You’re free to shop around for a lender with lower refinance rates or more flexible requirements. It’s all about finding the best refi deal for you.