Streamline refinances: FHA Streamline and VA IRRRL

#What makes a refinance “streamline”

A streamline refinance stays inside the same program: FHA to FHA, or VA to VA. Because the government already insures or guarantees your loan, the lender can lean on your payment record instead of re-checking everything from scratch. You still pay closing costs, and you still sign a new loan with a new term.

FHA Streamline. Your existing FHA loan must be current, not delinquent. HUD offers credit-qualifying and non-credit-qualifying versions; in the second, the lender checks your mortgage payment history but doesn’t run a credit check or calculate debt-to-income. No appraisal is required and there is no loan-to-value limit — the new loan is based on the balance of the FHA loan being refinanced, not on today’s value. That makes it one of the few ways to refinance a home that has lost value.

VA IRRRL. You must already have a VA-backed loan and certify that you live in the home or used to. If there is a second mortgage, its holder must agree to let the new VA loan take first place. Closing costs can be included in the new loan, so you don’t have to pay them up front.

#FHA Streamline vs VA IRRRL

Veterans receiving VA disability compensation generally don’t pay the funding fee. On the FHA side, the credit for your old upfront premium only applies when you move into another FHA loan, and none is due after 3 years.

#The net tangible benefit test

Both programs exist to lower your cost or risk, not to generate fees, so each has a benefit test.

FHA requires a tangible benefit through a lower rate, a shorter term or both. The size of the rate cut depends on whether the old and new loans are fixed or adjustable; the full table is in HUD Handbook 4000.1. HUD also cut annual MIP rates for loans endorsed on or after March 20, 2023, and the lower rates apply to most streamline refinances — so an older FHA loan may get a lower premium as well as a lower rate.

VA sets its tests in law (38 U.S.C. 3709):

• A fixed-to-fixed IRRRL must lower the rate by at least 0.5%; fixed to adjustable, by at least 2%.
• The lower rate can’t come only from discount points unless you pay the points in cash at closing and the loan stays within VA’s loan-to-value limits for points.
• All fees and closing costs — not counting taxes, escrow and the VA funding fee — must be recouped through lower monthly payments within 36 months.

#Worked example: the VA recoupment test

The funding fee doesn’t count toward recoupment, but every other cost does. If the lender’s fees and closing costs come to more than $6,156, this IRRRL can’t be guaranteed — and if you roll those costs into the loan, the saving shrinks and the ceiling falls with it. Ask for a Loan Estimate and divide total costs by the saving yourself, or use our break-even guide.

#Is a streamline right for you?

A streamline is usually worth a look when rates have fallen since you borrowed, your payment record is clean and you plan to stay past the break-even point. It is the wrong tool if you want to:

• Take cash out — see cash-out refinance.
• Get rid of FHA mortgage insurance — a new FHA loan carries MIP too; once you have enough equity, a conventional refinance is the way out.
• Move soon — the costs may never come back. See when not to refinance.

Lenders can add requirements of their own on top of HUD’s and VA’s, such as a minimum credit score. If one says no, another may not. More on each program: FHA loans and VA loans.