Drop your rate the easy way: FHA Streamline, USDA streamlined-assist and VA IRRRL

If you already have an FHA, USDA or VA loan, you may be able to lower your rate without starting over. Each of these programs has a streamline refinance, a simpler process that skips some of the usual steps, such as a new appraisal. However, “streamline” does not mean “no rules.” This article explains what each one skips, what still applies and how to tell whether it is worth it.

What the three have in common

• You must already have that type of loan. An FHA Streamline only refinances an FHA loan, a USDA streamlined-assist only refinances a USDA loan, and a VA IRRRL only refinances a VA loan.
• No appraisal in most cases. The new loan is generally based on your current balance, not a new value. That helps if values in your area have declined.
• Less paperwork. Income and debt-to-income checks are reduced or skipped, depending on the program and the lender. Most lenders still check your credit and look at your recent mortgage payments.
• No cash out. These programs are for lowering your rate or moving to a more stable loan, not for taking out equity. A cash-out refinance serves that purpose.
• A benefit test. Each program requires the new loan to help you in a measurable way.

FHA Streamline

FHA’s own rules do not require new income verification on most streamlines, but many lenders add a credit score minimum and look at your payment history. We know which lenders ask for what, and we place your streamline with one that fits your credit and history. See our FHA Streamline page.

USDA streamlined-assist refinance

Because there is no appraisal, it can work even if your home’s value has fallen.

VA IRRRL (Interest Rate Reduction Refinance Loan)

VA does not require new income verification or an appraisal for most IRRRLs, but lenders often set their own credit standards. We match your IRRRL to a lender whose standards fit. Closing costs and the funding fee can be included in the loan amount. See our VA IRRRL page.

If you have served and have an FHA or USDA loan today, a VA refinance can replace it, and we price it beside the streamline.

What “no appraisal, no income check, no credit check” really means

Streamlines are often advertised this way. Here is what is actually true:

• No appraisal: true in most cases for all three.
• No income check: FHA and VA do not require new income verification for most streamlines. USDA still checks that your household income is within its limit, although it skips the debt-to-income calculation.
• No credit check: generally not accurate. Most lenders check your credit and review your mortgage payment history, and many set a minimum score even when the agency does not.

Deciding whether it is worth it

A lower rate is not automatically a better deal. Adding closing costs to the loan raises your balance, and a new 30-year term can raise your total interest if you only ever pay the new, lower payment.

A new 30-year term does not mean 30 more years of payments. It sets the longest the loan can run, not how long you have to take. If you keep paying what you pay today, the difference goes to principal, and at the lower rate the new loan can be paid off on or before the date your current loan would end. Our refinance calculator shows the payoff date for your numbers.

The simple test is break-even: divide your total closing costs by your monthly savings. If it costs $3,000 to refinance and you save $100 a month, you break even in 30 months. If you keep the loan longer than that, the refinance pays off. If you do not, it does not. (These figures are only an example.)

Two more comparisons are worth making:

1. Option 1 vs. Option 2: a no-cost option (higher rate, lender covers costs) vs. paying costs for a lower rate.
2. Payoff date: keep paying what you pay today, or choose a shorter term, so the new loan ends on or before your current payoff date.

Our break-even calculator can run these numbers. For more background, read streamline refinances and break-even.

Rates change daily, so the right time to check is when you are ready to act. A broker can price your streamline with several lenders on the same day and show you the break-even on each.

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Sources: HUD Handbook 4000.1 (FHA Streamline). USDA Rural Development refinance options matrix. VA Interest Rate Reduction Refinance Loan. VA funding fee.