FHA Simple Refinance: How It Works And Why Nobody Needs It Anymore

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I’ve done many FHA loans over the years, but I’ve never done even a single FHA simple refinance that I can remember. I’ll explain what an FHA simple refinance is and why I think most people don’t need it anymore.

What Is An FHA Simple Refinance?

The FHA simple refinance is an FHA-insured refinance transaction designed to reduce interest rates and monthly payments for homeowners who already have an FHA mortgage.

FHA mortgages are funded by private lenders, but insured and regulated by the Federal Housing Administration (FHA).

FHA financing is attractive because it offers competitive interest rates, low minimum down payments, and lending requirements that are less stringent than other types of mortgage financing. 

The FHA simple refinance is a “rate/term” or “limited cash out” transaction. Many homeowners use these types of refinance transactions to reduce their monthly payment, reduce their rate, or shorten their loan term without tapping into additional home equity.

FHA doesn’t allow you to cash out equity when you do a simple refinance. If you’re interested in getting cash out, you may want to check out an FHA cash out refinance, HELOC, or home equity loan.

FHA also offers two other rate/term transactions called the FHA no cash out refinance and the FHA streamline refinance. We’ll compare and contrast both of these with the FHA simple refinance shortly.

FHA Simple Refinance Eligibility Requirements

The FHA simple refinance requirements are very similar to the FHA no cash out requirements. There are only a few minor variations between the two. The following is a rundown of the most important eligibility criteria for a simple refinance:

  • Minimum credit score – The official FHA minimum credit score is 500, but most banks will require at least a 580 to 620.
  • Maximum debt-to-income ratios – The standard maximum front-end debt ratio (which includes principal, interest, property taxes, homeowner’s insurance, and annual mortgage insurance) is 31%. The maximum standard back-end ratio (which also includes all other debt payments) is 43%. It’s sometimes possible to exceed these ratios with compensating factors such as savings, good credit, low loan-to-value, etc. I’ve gotten applicants approved with debt ratios as high as 55% before.
  • Occupancy – Primary residence or HUD-approved second homes only. No rentals.
  • Eligible property types – Single-family homes, townhomes, planned-unit developments (PUD), FHA-approved condos, 1-4 unit residential buildings, and manufactured homes built after June 15, 1976 are eligible. Your home doesn’t need to be perfect, but it should be in at least reasonably good condition with no major repairs needed. If you’re financing a condo, you can check the approval status of the condo complex here.
  • Upfront mortgage insurance (UFMIP) – FHA charges 1.75% of the loan amount for upfront mortgage insurance, which must be entirely financed or entirely paid in cash. UFMIP can be partially refundable for certain FHA refinances (more on those later).
  • Annual mortgage insurance (MIP) – FHA also charges annual mortgage insurance that ranges from 0.50% to 0.75% of the loan amount, depending on loan-to-value, loan amount, and loan term. MIP is split into twelve installments that are paid as part of your monthly mortgage payment. Depending on the starting loan-to-value, MIP could apply for as long as 11 years or the life of the loan.
  • Mortgage late payments – No mortgage late payments in the last six months on any mortgage and no more than a 30-day late on any mortgage in the six months before that. You must also be current on all mortgages attached to the property you’re refinancing.
  • Forbearance – If you were granted a forbearance on the property you’re refinancing, you must have completed the plan and made at least three consecutive mortgage payments within the month due.
  • Maximum loan-to-value (LTV)– The maximum LTV is 97.75% for primary residences and 85% for HUD-approved second homes. If you owe more than these maximum LTVs, you may want to check into the FHA streamline refinance instead.
  • Maximum combined loan-to-value (CLTV) – The maximum CLTV is 97.75% for primary residences and 85% for HUD-approved second homes. If you owe more than these maximum CLTVs, you may want to check into the FHA streamline refinance instead.
  • Maximum mortgage amount – The maximum loan amount varies depending on the FHA loan limit and the area where the property is located. You can look up the loan limits for your area here.
  • Cash out – Cash out at closing is limited to $500 or less. If you want to cash out more than that, you’ll need to check into an FHA cash out refinance.
  • Allowed primary mortgage payoff – Only FHA mortgages can be paid off with a simple refinance.
  • Other allowed payoffs – The only other allowed payoffs are PACE (Property Assessed Clean Energy) loans, which are a type of secured financing that enables homeowners to borrow money for energy-efficient home improvements via their property taxes.

The main difference between the simple refinance and the no cash out refinance relates to what you can pay off as part of the transaction. The FHA simple refinance only allows you to pay off your existing FHA loan and any PACE loans (if applicable).

The FHA no cash out refinance allows you to pay off any kind of primary mortgage (conventional, VA, FHA, etc.) along with PACE loans, seasoned junior liens, equity splits due to divorce, recorded land contracts, and short payoffs (the lender settled for a lower payoff amount).

Current FHA Refinance Rates

Check out the table below for the latest FHA mortgage rates in your state. If you find something you like, I suggest submitting an application and locking the rate as soon as possible. Interest rates are volatile and can change at any time.

Want to see more options? Check all mortgage rates here

Comparing And Contrasting FHA Rate/Term Options

There are three main rate/term transactions available via FHA financing: FHA no cash out refinance, FHA simple refinance, and the FHA streamline refinance.

The FHA streamline refinance comes in two variations: the non credit qualifying FHA streamline and the credit qualifying FHA streamline.

If you’re not a mortgage professional, the key differences between these options can be confusing and difficult to remember. That’s why I’ve summarized them in the following table.

 FHA No Cash Out RefinanceFHA Simple RefinanceNon Credit Qualifying FHA StreamlineCredit Qualifying FHA Streamline
Documentation typeFull DocFull DocNo DocLite Doc
Minimum credit score500 *500 *None500 *
Credit report underwriting required?YesYesNoYes
OccupancyOwner-occupied, second homesOwner-occupied, second homesOwner-occupied, second homes, rentalsOwner-occupied, second homes, rentals
Max LTV97.75%97.75%NoneNone
Proof of income required?YesYesNoNo
Max debt ratios31% / 43%31% / 43%NoneNone
Appraisal required?YesYesNoNo
Allowed primary mortgage payoffAnyFHA onlyFHA onlyFHA only
Other allowed payoffsPACE loans, junior liens, equity splits, land contracts, and short payoffs.PACE loansNoneNone
Max cash out$500$500$0$0
Roll closing costs into new loan?YesYesNoNo
Learn MoreLearn MoreLearn More
* Though FHA only requires a minimum 500 credit score, most lenders will require at least a 580 to 620.

Why Do An FHA Simple Refinance?

If you already have an FHA loan and you’re just looking to reduce your rate and payment, it usually makes more sense to do an FHA streamline. The FHA streamline refinance is super easy to qualify for and requires minimal paperwork.

This is why the simple refinance seems like a product that nobody really needs. Having said that, there are some unique situations where a simple refinance could make sense:

  • Your home has increased in value – If your home has significantly increased in value, it could make sense to do the FHA simple refinance instead of the streamline. You may get a lower interest rate than a streamline offers and you may be able to reduce the annual MIP that you pay as part of your mortgage payment. If you have at least decent credit and owe less than 80% of the value of your home, you’ll probably also want to look at a conventional refinance so you can drop the annual MIP from your monthly payment.
  • Your credit has improved – If your credit has improved significantly since you got your existing FHA loan, it may be worthwhile to do a simple refinance. You may qualify for a better interest rate than if you do the FHA streamline.
  • You have limited cash – FHA doesn’t allow closing costs and escrow deposits to be rolled into the new loan when you do an FHA streamline. Streamline borrowers typically have to bring at least some cash to closing to set up their new escrow account. If you’re tight on cash, the simple refinance might work better for you.
  • You want to pay off a PACE loan – A PACE (Property Assessed Clean Energy) loan is a type of secured financing that enables homeowners to borrow money for home improvements via their property taxes. FHA doesn’t allow you to pay off any other liens with a streamline refinance. If you want to refinance and pay off a PACE loan at the same time, you can do that with a simple refinance.

Here’s when the FHA streamline probably makes more sense:

  • You owe more than your home is worth – If you’re in a negative equity situation, then it makes sense to go with the FHA streamline because it doesn’t require an appraisal and there are no loan-to-value caps.
  • Your credit has deteriorated – Most lenders offer the non credit qualifying streamline, which means they will not require a credit report.
  • If you don’t have income or can’t prove income – Most lenders will not require income documentation.
  • You converted your home to a rental property – The simple refinance is only allowed on owner-occupied homes and HUD-approved second homes. If your home is now a rental, then the FHA streamline is the way to go.
  • You’re super busy and want an easy transaction – The FHA streamline requires very little paperwork, so it makes more sense if you want a quick and simple refinance transaction.

How To Get a UFMIP Refund

You may be entitled to an up front mortgage insurance premium (UFMIP) refund if your existing FHA mortgage is no more than 36 months old. This applies to any FHA refinance loan type, whether it’s an FHA streamline, simple refinance, no cash out refinance, or cash out refinance. 

You may remember that there are two types of mortgage insurance that apply to any FHA mortgage:

  • Upfront mortgage insurance (UFMIP) – Upfront mortgage insurance currently equals 1.75% of the loan amount.
  • Annual mortgage insurance (MIP) – Annual mortgage insurance is paid as part of your monthly mortgage payment. The annual mortgage insurance rate varies depending on how much equity you have in your home. Your lender can estimate the new MIP amount for you.

There are no refunds for the annual mortgage insurance, but you may receive a large refund for the UFMIP, based on the following table:  

Months After ClosingUFMIP Refund %Months After ClosingUFMIP Refund %Months After ClosingUFMIP Refund %
180%1356%2532%
278%1454%2630%
376%1552%2728%
474%1650%2826%
572%1748%2924%
670%1846%3022%
768%1944%3120%
866%2042%3218%
964%2140%3316%
1062%2238%3414%
1160%2336%3512%
1258%2434%3610%

Important: UFMIP refunds are not paid directly to you. They’re applied to the upfront mortgage insurance premium on your new FHA loan. For example, if the new mortgage insurance premium is $5,000, but you’re entitled to a $4,000 refund, the net UFMIP on the new FHA loan will be $1,000.

Frequently Asked Questions

What is an FHA simple refinance?

The FHA simple refinance is a credit-qualifying FHA-insured refinance transaction designed to reduce interest rates and monthly payments for homeowners who already have an FHA mortgage.

Is it easier to refinance an FHA loan?

Yes, it can be. The FHA streamline refinance typically requires very little paperwork to complete. Most lenders do not require a credit report, appraisal, or any income documentation.

What is the 210 day rule for FHA loans?

The 210-day rule applies to FHA streamline refinances. FHA requires at least six months of seasoning since the first payment due date on your existing loan and at least 210 days seasoning since the closing date of your existing loan before you can streamline refinance an FHA loan.

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About Mike Roberts

Mike Roberts is the founder of MyHECM.com, a published author, and a highly experienced mortgage industry veteran with over a decade of mortgage banking experience. When he's not working, he enjoys spending time with his family, skiing, camping, traveling, or reading a good book. Roberts is the author of The Reverse Mortgage Revealed: An Industry Insider’s Guide to the Reverse Mortgage, which is available on Amazon.