Technically, FHA does not have a credit score requirement for FHA streamline refinances, but most lenders do.
You can only go up to 97.15%or 97.75% of your purchase price if you just bought the house. Since you put 3.5% down, there's not a lot of room to roll in new closing costs.
What a lender typically does to help minimize out of pocket expenses for a consumer is offer a higher than market interest rate which allows them to cover more of your closing costs on the refinance. Based on the size of your loan, I'm guessing that's why you're being offered a higher rate. I don't want to go into all the details, but it is easier for lenders to pay the borrower's closing costs when the loan amount is around $300k or higher. If you want more details as to why, just let me know and I'll spill all the geeky loan info.