- Streamline FHA loans involve a borrower paying off an existing FHA backed loan with a new loan that has a lower interest rate and a reduced monthly payment. Borrowers can also use FHA streamline refinance loans to refinance variable interest rate loans into fixed rate loans. Only borrower's who are current on their existing mortgage payments are eligible to apply for streamline refinances. The borrower cannot extract additional cash from the home during the refinance and the entire loan balance must go towards paying off the existing FHA loan.
- Normally lenders charge a variety of processing fees during a refinance and these fees include origination fees, credit report fees and document preparation fees. Fees vary from lender to lender but can add between several hundred and a few thousand dollars to the total cost of the loan. FHA streamline loans do not eliminate any of these fees but some lenders enable borrowers who lack the cash to pay the closing costs to pay no out-of-pocket costs in exchange for paying a higher rate of interest. Ultimately, borrowers pay less by paying fees upfront but for people who want to refinance and cannot pay the upfront costs, the no-fee streamline is an attractive option.
- To determine the value of a home being financed with an FHA-backed loan, lenders must hire an FHA-certified home appraiser to complete an appraisal on the subject property. FHA appraisals are more in-depth than conventional appraisals and include details of any minor safety hazards in the home such as cracked windows or loose wiring. The FHA allows homeowners to use the appraisal used for the original loan for the refinance. Normally, appraisals costs between $200 and $400 so this means borrowers save money on FHA refinances when compared with conventional refinances that do require new appraisals.
- The FHA insures lenders against some of the losses associated with borrower default but does not have direct control over the closing costs on a streamline refinance. Some lenders require borrowers to pay all of the fees associated with a regular refinance including an origination fee, which often amounts to 1 percent of the total loan amount. Borrowers should shop around to find the best terms offered by different lenders to find out which lenders waive fees beyond just the cost of an appraisal and how much waiving fees impacts the interest rate.