If you’re thinking about refinancing an FHA loan, ask yourself a couple of questions first: Do you want a lower rate or shorter payment term? Or do you want cash?
An FHA streamline refinance is often the quickest way to change the terms of an existing FHA loan. You might not even have to worry about a credit check or appraisal.
An FHA cash-out refinance lets you tap the equity you’ve built in your home for cash. Compared to a streamline refi, a cash-out refinance takes more paperwork, and you’ll end up with a bigger loan. But you’ll also get the cash you need.
Here’s what to know when deciding between an FHA streamline refinance vs. an FHA cash-out refinance.
FHA streamline refinance vs. FHA cash-out refinance
Here’s an overview of how FHA streamline refinances and cash-out refinances compare:
FHA streamline | FHA cash-out | |
|---|---|---|
Main purpose | Get a lower rate or shorten your repayment term | Tap your equity for cash |
Must refinance an existing FHA loan? | Yes | No |
Cash payout | None | Up to 80% of your home’s value, minus what you owe |
Appraisal required? | No | Yes |
Credit and income check required? | Usually not; required in some cases | Yes |
Can roll your closing costs into the loan? | No | Yes |
Waiting period | 210 days and six payments | 12 months of owning and occupying the home |
Mortgage insurance premiums (MIPs) |
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FHA streamline refinance
An FHA streamline refinance comes with less paperwork and underwriting than a standard refinance. You also usually don’t have to worry about getting a new FHA appraisal.
There are two types of streamline refinances:
Non-credit qualifying: This option has the most simplified application process since the lender doesn’t check your credit or income documentation.
Credit-qualifying: With this option, the lender will look at your credit and income. While this is a more involved process, you might get a better rate since the lender will have more information. This is also the only type of streamline refi that lets you remove a co-borrower from the loan.
Pros
You can get a lower interest rate.
There’s no home appraisal requirement.
Non-credit qualifying option expedites underwriting and closing.
Cons
Closing costs can’t be rolled into the mortgage.
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 MIP.
Net tangible benefit
To qualify for an FHA streamline refinance, you’ll have to gain a “net tangible benefit.” This means the refinance must accomplish at least one of the following:
Lower your combined rate (i.e., your mortgage rate plus the MIP rate) by at least 0.5 percentage points.
Switch your loan from an adjustable-rate mortgage to a fixed-rate mortgage.
Reduce your combined rate by any amount and shorten your loan term by at least three years, as long as your monthly payment doesn’t rise by more than $50.
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.
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.
More likely to 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 MIP 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.
» MORE: What to know about FHA loans
Which should you choose?
Choose a streamline refinance if:
Mortgage rates have dropped enough for you to lower your rate by at least half a percentage point.
You want lower payments or a shorter term.
Your credit or income has worsened since you got your original FHA loan, so you might not qualify for another type of refinance.
Your home’s value has dropped, so you’d prefer not to have an appraisal.
Choose a cash-out refinance if:
You need access to a large amount of cash and don’t mind having a larger loan to pay off.
You’ve built a good amount of equity in your home.
You have decent credit and sufficient income to qualify.
You want to remove a co-borrower from the loan and can qualify for the new loan on your own.
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
Other FHA refinance options
If a streamline or cash-out refinance option doesn’t fit your situation, there are a couple of other options you can consider.
FHA rate and term refinance
If you’re refinancing to change your rate or loan term, the most basic options are:
An FHA rate and term refinance if you don’t currently have an FHA loan.
An FHA simple refinance if you’re refinancing an existing FHA loan.
Like with a streamline refinance, you can’t get cash with these options. You can remove a co-borrower or pay off a land contract, though.
» 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
