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Do You Need To Refinance?

September 03, 2020

Do you need to refinance your home loan, but aren’t sure what the difference is between an FHA Streamline Refinance loan and FHA cash-out refinancing?

These loans have important differences, beginning with the availability of cash paid to the borrower at closing time. One refi option permits cash back, the other does not.

FHA Cash-Out Refinancing Loans

FHA cash-out refi loans allow the borrower to be paid cash at closing when the costs of the new loan have been satisfied and the original loan has been paid off. These cash-out loans are offered by both FHA lenders and conventional lenders; why should a borrower choose an FHA cash-out refinance?

Interest rates are generally lower on government-backed mortgages like FHA refinance loans. That said, your FICO scores will affect the actual rate offered to you and you will need to pay attention to your credit scores and history in the year leading up to your refinance loan application.

FHA cash-out loans can be used to refinance an existing FHA mortgage or non-FHA loan. In either case, an FHA cash-out refinance can also include additional money for energy-saving improvements to the home when the borrower applies for a loan that includes an FHA Energy Efficient Mortgage (EEM). 

These extra funds are sometimes discussed as cash back to the borrower, but the fact is that the funds you get through the EEM program may ONLY be used to pay for approved projects to improve the property. These funds cannot be used without lender approval.

FHA Streamline Refinance Loans

FHA Streamline refinance loans allow home owners paying on existing FHA mortgages to apply for refinancing with no FHA-required credit check. 

Streamline refinance loans are intended to provide a benefit to the borrower; such benefits can include a lower mortgage payment or a lower interest rate. You cannot get cash back on these refi transactions except in the form of a refund for money paid upfront for items later financed into the mortgage.

FHA Streamline Refinance loans include the EEM option–you can get funds for approved energy-saving improvements similar to the Cash-Out refinance loan rules mentioned above. And just as with FHA Cash-Out loans, EEM funds cannot be used for any purpose except the approved upgrades to the property.

FHA Streamline refinance loans cannot be used to refinance conventional loans. You must have an existing FHA mortgage in order to apply for an FHA Streamline Refinance.

One reason these mortgages are popular is that they have no FHA-required credit check OR appraisal. The lender is free to require both but overall these loans are designed to be easier to get and part of that is due to the fact that no cash is paid to the borrower at closing time.



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