Ask many professional loan officers working for mainstream mortgage lenders about an FHA streamline refinance for investment properties and you might be disappointed. They may well say there’s no such thing.
Don’t blame the loan officers. Such refinances are rare, and even a seasoned professional may have never encountered one.
But they are possible for homes originally purchased as owner-occupied properties with an FHA loan, then later converted to a rental.
Key Takeaways
- You can use an FHA streamline refinance on investment properties as long as it meets FHA guidelines
- Because they’re uncommon, many lenders don’t advertise or even know about them.
- If you have 20–25% equity, a conventional refinance without mortgage insurance may save you more in the long run.
What Is an FHA Streamline Refinance?
An FHA streamline loan lets you refinance an existing FHA loan with no appraisal, no income verification, and a limited credit review.
If rates drop (view FHA refinance rates today), the program enables you to refinance to better terms. This is true even if your home has lost value, your income shrank, or you’ve had credit dings since you got your last FHA loan.
These refinances are cheaper, faster, and require less paperwork than other refinancings.
Yet, most people don’t know you can use these for investment properties as long as you meet the criteria.
How to Use an FHA Streamline Refi For an Investment Property
Any home converted to a rental after the mandatory 12-month owner-occupancy period can qualify for an FHA streamline refinance, provided the lender secures the proper HUD sign-off or treats it as non-owner occupied.
The FHA’s Single Family Housing Policy Handbook (HUD 4155.1) specifies that:
“Streamline refinances may be used for Principal Residences, HUD-approved Secondary Residences, or non-owner occupied Properties.”
Key excerpts explain:
- Mortgagees must document HUD approval for a property classified as a secondary residence.
- If HUD approval isn’t obtained, the refinance is processed as a non-owner occupied property.
Example
Imagine you bought a four-unit home and lived in one of the units as your primary residence for and rented out the other three units. After a year, you decide to move, and rent out the fourth unit that you previously occupied. Imagine rates have decreased since then, you could then approach an FHA‐approved lender and say, “I’d like to do a Streamline Refi.”
Because you stayed in the home for at least 12 months, the lender can either:
- Obtain HUD’s approval to treat your rental as a “secondary residence,” or
- Process it as a non-owner occupied refinance.
Once that HUD sign-off is in place (or the lender classifies it correctly), you can qualify, as long as you meet other general FHA streamline eligibility requirements.
Check your eligibility for an FHA refinance with Refi.com!
FHA Streamline Eligibility Requirements
In addition to HUD approval, to qualify for an FHA streamline refinance on a converted rental, you must meet the following requirements:
- Have an Existing FHA Loan: The mortgage being refinanced must already be FHA-insured.
- Be Current on Payments: All payments must be up to date—any completed forbearance programs must have ended, and the loan current.
- Meet the Tangible Benefit Test: The refinance must deliver a tangible financial benefit, such as a lower interest rate or monthly payment.
- Meet Seasoning Requirements: Have at least 6 months of payments made on time and more than 210 days since the first payment due date.
- Cash-Out Limit: Borrowers may only receive up to $500 in cash back at closing.
Interested in getting more cash-back? Learn about FHA cash-out refinancing.
Why Is An FHA Streamline Refinance For Investment Property So Rare?
The FHA doesn’t generally lend on investment properties. So, the need to refinance one arises only rarely.
But there are a couple of exceptions to the no-investment-homes rule:
- A borrower can use an FHA loan to buy a 2-4 unit multifamily property, but only if he or she intends to occupy one of the units.
- The FHA may be sympathetic if an owner’s circumstances change. For example, someone with a single-family home or multifamily property with a genuine need to move home and rent out their existing place might be allowed to do so.
Such cases seldom arise compared to the hundreds of thousands of loans that the FHA originates each year, which is why it’s important to work with a lender who is familiar with working with these loans types.
Get an estimate from Refi.com today!
Alternative Refinance Options
If you’ve built up 20–25% equity, consider a conventional rate-and-term refinance without ongoing mortgage insurance. This may offer:
- Lower long-term costs by eliminating FHA mortgage insurance premiums.
- Competitive rates that offset upfront closing costs.
Run side-by-side scenarios to determine whether an FHA streamline or a conventional refinance delivers the greatest savings.
While FHA streamline refinances for converted rentals are uncommon, they’re a legitimate way to secure a lower rate with minimal paperwork. If you’ve met the owner-occupancy requirement and your FHA loan is current, it’s worth exploring this niche option, and comparing it against conventional alternatives, to see which path saves you the most.
