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FHA Streamline Refinance vs. FHA Cash-Out Refinance: Which Is Right for You?

With an FHA refinance, you can lower your monthly payments, shorten your loan term or access a lump sum of cash.

Robin Rothstein
Kate Wood
Chris Jennings
Updated
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An FHA refinance is a way to save money by changing your loan term or interest rate. Many homeowners look to do this when rates are low.
But the Federal Housing Administration has refinancing options that can help you accomplish other goals beyond lowering your monthly mortgage payment.
Knowing more about the different kinds of FHA refinance loans available can help you decide if one is right for you.

FHA streamline refinance

An FHA streamline refinance makes it easier to refinance an FHA loan because it doesn’t require a new FHA appraisal.
There are two kinds of streamlined refinancing: non-credit qualifying streamline refinancing and credit-qualifying streamline refinancing.
A non-credit qualifying streamline refinance has a simplified application process, where the lender won't assess your creditworthiness or debt-to-income ratio.
But if you opt for a credit-qualifying streamline refinance, where your financial status and ability to pay your mortgage are reevaluated, you may be able to get a better interest rate.
Did you know...
If you want to remove a co-borrower from your FHA loan, you’ll need a credit-qualifying refinance to prove you have the income and credit strength to manage the loan on your own.
Comparing different FHA streamline refinance lenders can also help you get a lower rate. Your current lender is a good starting point, but it's a good idea to check rates with at least three lenders to make sure their offer is competitive.

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Net tangible benefit

In order to get an FHA streamline refinance, you’ll have to gain a “net tangible benefit.” If you’re refinancing from a fixed-rate loan to another fixed-rate loan, this means your new interest rate needs to accomplish one of two things:
  • Be at least 0.5 points below your previous interest rate (inclusive of your monthly mortgage insurance premium rate).
  • Be lower by any amount and shave at least three years off your loan term.

Pros

  • You can get a lower interest rate. 
  • There’s no home appraisal requirement. 
  • Non-credit qualifying streamline refinancing offers expedited underwriting and closing. 

Cons

  • Closing costs can’t be rolled into the mortgage. You’ll have to pay them up front.  
  • You can’t refinance if doing so will add more than 12 years to your loan term. 
  • You’ll still have to pay an annual mortgage insurance premium (MIP).

FHA cash-out refinance

An FHA cash-out refinance replaces your current mortgage with a new, larger FHA loan. The difference between what you owed on your mortgage and the new, higher loan amount provides the cash. Generally, you can borrow up to 80% of the value of your home, minus what you owe.
If rates are lower than they were when you first purchased the home, it can help offset higher monthly payments from a larger home loan.
» MORE: What to know about FHA loans

Pros

  • You can access your home’s equity without getting a second mortgage.
  • If interest rates have gone down, you can get a lower rate and free up cash at the same time. 
  • FHA cash-out refinancing will likely get you a better interest rate than a personal loan or credit card.

Cons

  • May not be your best choice if mortgage rates have increased since you got your loan. 
  • You must pay the upfront mortgage insurance premium plus the monthly amount.
  • You’re taking on a larger mortgage, and could lose your home to foreclosure if you can’t keep up with payments.

When should you refinance an FHA loan?

FHA refinances can come with considerable closing costs, which may include an appraisal. And with any FHA refinance, you'll have to pay a new upfront mortgage insurance premium equal to 1.75% of the total amount of the refinanced loan.
Despite this, refinancing an FHA loan may be a good option for you if you want to:
  • Decrease your interest rate
  • Change to a shorter mortgage term
  • Take on a costly project like a major home renovation
🤓 Nerdy Tip
Lowering your mortgage rate will typically bring down your monthly FHA loan payments and reduce the total interest paid over the life of the loan. Still, it's important to remember that you won't truly enjoy those savings until after you've reached the break-even point. That's when your refinance savings equal the amount you spent on the refinance itself.
» MORE: Browse top mortgage refinancing lenders

Other FHA refinance options

FHA rate and term refinance

If you're refinancing to change your interest rate or loan term, the most basic option is a rate and term refinance (if you don’t currently have an FHA loan) or an FHA simple refinance (if you’re refinancing an existing FHA loan). Either way you can't take cash out, and if the refinance results in a profit of more than $500, that money is applied to your loan's principal.
So, why would you get a rate-and-term FHA refinance? Aside from potentially lowering your rate or going from say, a 30-year mortgage to a 15-year, you can use this type of FHA refinance to remove a co-borrower or pay off a land contract.
» MORE: See today's FHA refinance rates

FHA 203(k) refinance

An FHA 203(k) refinance lets you roll renovation or repair costs into your new mortgage. You can use it whether or not your current loan is FHA-backed.

Two types of FHA 203(k) refinances:

🔹 Standard 203(k)
  • For repairs costing $5,000 or more
  • Requires a 203(k) consultant to oversee the work
🔹 Limited 203(k)
  • For nonstructural repairs up to $75,000
  • No consultant needed
Important: All repairs must meet FHA eligibility requirements.
» MORE: Guidelines for FHA 203(k) refinances

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Frequently Asked Questions
Is an FHA refinance worth it?
It depends on your individual situation. Use a mortgage refinance calculator to see how much you might save and when you'd reach your break-even point. That's when the savings you get from refinancing is equal to the fees and closing costs.
How soon can an FHA loan be refinanced?
It depends on the type of FHA refinance you choose. With most simple and rate and term refinances, there is no waiting period. FHA streamline refinances require at least 6 months' seasoning, and with a cash-out refinance, you'll typically have to wait at least 12 months.
Is there a penalty for refinancing an FHA loan?
No. But as with any refinance, you will pay closing costs. With an FHA loan, those costs will include a new upfront mortgage insurance premium and, unless you choose an FHA streamline refinance, a new FHA appraisal.
Does an FHA streamline refinance get rid of PMI?
No. Regardless of how much of your FHA loan you've paid off, FHA mortgage insurance premiums, or MIP, last for 11 years if you made a down payment that was 10% or more. With a down payment that's less than 10%, you will pay MIP for the life of the loan. The only way to remove FHA mortgage insurance is to refinance from an FHA loan to a conventional loan.
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