To give you a thorough explanation of the streamline offering, there are actually two kinds of FHA streamline refinances: One is where you get a market interest rate and pay cash for the closing costs or finance them in the loan amount. The second method would be where you pay a sligthly higher interest rate and have the lender finance the closing costs into the interest rate. An example of the first method would be 5.125% with closing costs as compared to the second method with a rate of 5.625% with no closing costs and absorbed by the lender.
Now there are two other things that have to be considered in terms of the cash involved with Streamlines that are really not closing costs but money that has to come from somewhere. One of these categories is the prepaid items that are required to set up your new escrow account for property taxes and insurance as well as prepaid interest, which is determined based on the closing date. The amount of property taxes and insurance collected are determined by their due dates. Keep in mind, though, that any money in your existing escrow account will be refunded to you once the loan is paid off via the refinance. So that should really be a wash in terms of the cost to refinance.
The second thing involved in a streamline refinance is the FHA mortgage insurance. If you are refinancing your existing loan within the first five years of the loan, there will be a partial credit for the up front mortgage insurance that was collected on your original loan. Then, on the new loan, the mortgage insurance has to be collected again.
Finally, the other confusing thing about Streamline refinancing involves the appraisal. In order to finance the closing costs, you typically have to get a new appraisal and hope that the property appraises for more than you paid originally so that the loan to value does not exceed 97.5%. In cases where that is unlikely, a method is available without an appraisal where the closing costs can be absorbed in the higher interest rate or paid in cash so that the new loan amount does not exceed the original loan amount.
So as you can see, the FHA streamline process is somewhat complicated and should only be pursued with a loan officer that is fairly familiar with the process. I hope that helps....