Understanding the Maximum Loan Amount for FHA Streamline Refinances

The FHA streamline refinance program allows homeowners with existing FHA loans to refinance into a new FHA loan under easier qualifying guidelines. One of the most common questions for borrowers looking into an FHA streamline is what the maximum loan amount can be on the new loan. The rules regarding the max loan amount depend on the specifics of your situation. This article will explain the key factors that determine the max loan amount on an FHA streamline refinance.

What is an FHA Streamline Refinance?

First, let’s quickly review what an FHA streamline refinance is. The FHA streamline program allows you to refinance an existing FHA mortgage into a new FHA mortgage with reduced documentation. This lets you obtain a lower interest rate or switch to a shorter term without needing to fully re-qualify based on income, assets, and credit.

The basic requirements are:

• The existing mortgage must be FHA insured already. Conventional or other non-FHA loans don’t qualify.

• The existing FHA mortgage must be current – you can’t be delinquent or in default to qualify.

• There must be a “net tangible benefit” from the refinance such as a lower rate or more stable loan term

• Only $500 cash back is allowed to the borrower at closing

The streamline program comes in two main versions – credit qualifying, which requires a credit check, and non-credit qualifying, which does not require a credit check.

The Max Base Loan Amount Formula

For owner-occupied principal residences, the “maximum base loan amount” that FHA will insure on a streamline refinance is calculated as:

The lower of

• The outstanding principal balance of the existing FHA mortgage as of the month before closing

OR

• The original principal balance of the existing FHA mortgage

This means the new base loan amount is capped based on the current unpaid balance, but cannot exceed the amount originally borrowed.

Here is an example:

• Original FHA principal balance: $200,000
• Current unpaid principal balance: $180,000

In this scenario, the maximum base loan amount for the streamline refinance would be $180,000.

The lower current balance number limits the new loan amount rather than using the original higher amount.

Adding Closing Costs and Prepaids

On top of the maximum base loan amount, you can finance into the new mortgage:

• Allowable closing costs
• Prepaid items like escrows and per diem interest
• Upfront mortgage insurance premium (UFMIP)

So in our example above with a $180,000 base amount, if there were $5,000 in closing costs and prepaid items, the total new mortgage amount could be $185,000.

One key point is that discount points cannot be financed into the new loan amount. Borrowers must pay those in cash if discount points are charged.

Options Without an Appraisal

On a streamline refinance, lenders have the option to proceed without a new appraisal. When no appraisal is obtained, the max loan amount formulas above apply.

Without an appraisal, the loan amount cannot exceed the original principal balance. So you cannot tap additional equity if home values have increased.

Proceeding without an appraisal results in lower costs for the borrower.

Loan Amount With an Appraisal

If the lender orders an appraisal on a streamline refinance, then there is the potential to qualify for a higher loan amount based on the home’s appreciated value.

In this case, the maximum loan amount becomes the lowest of:

• The current principal balance minus UFMIP refund plus new UFMIP and closing costs

• 97.75% of the appraised value plus the new UFMIP

For example:

• Current principal balance: $180,000
• Closing costs: $5,000
• Original principal balance: $200,000
• Appraised value: $300,000

97.75% of $300,000 is $293,250.

The lowest amount is the $180,000 balance plus closing costs and new UFMIP. So with an appraisal, the max loan amount has increased in this scenario.

Investment Properties

The guidance above all pertains to owner-occupied principal residences. There are different rules for investment properties or secondary residences.

Investment properties are only eligible at all for FHA streamline refinancing if the borrower is a HUD-approved nonprofit or government agency.

For investment properties, the maximum loan amount is simply the outstanding principal balance. No other costs can be added in. The loan amount cannot go up even with an appraisal.

For secondary residences, the rules are the same as for investment properties. The max loan amount is limited to just the outstanding principal balance.

The Net Tangible Benefit Rule

While the calculations above determine the maximum loan amount allowed by FHA for streamline refinancing, lenders will also look at the specific details of each refinance scenario to ensure there is a “net tangible benefit” to the borrower.

This means there needs to be a clear advantage to refinancing such as a lower rate, shorter term, or going from an adjustable rate to a fixed rate.

If the new loan would end up increasing your costs over the life of the loan without providing an advantage like a lower rate, then the lender may determine the refinance does not meet the net tangible benefit test even if it falls within FHA’s maximum loan amount guidelines.

Work With a Lender to Determine Your Maximum

As you can see, calculating the max loan amount on an FHA streamline refinance requires looking at your specific situation, including:

• Whether you want an appraisal or not
• If it is your primary residence, second home, or investment property
• Comparing your current balance, original balance, and appraised value if applicable

The best way to determine what loan amount you qualify for is to connect with a lender. They can review the details of your existing mortgage and home value to provide the definitive max loan amount you can get approved for.

This will allow you to precisely calculate the payment and savings from an FHA streamline refinance at your personalized maximum amount.