Whenever you refinance, lenders check to see if the refinance that you would like to do actually "makes sense." For example, the FHA streamline refinance program is very popular right now -- because interest rates are lower than they have been in recent years and more people are in FHA loans than in the past because of the elimination of other loan programs.
The FHA streamline program uses a "net tangible benefit" equation -- which can vary from lender to lender -- but the general idea is that people need to be able to financially benefit from the transaction so that mortgage lenders aren't "harming" their financial situation.
In order to participate in the FHA streamline refinance program, three criteria must be met:
1. The property must be owner-occupied (no investment properties allowed)
2. The borrower can’t have more than two 30-day late payments on their mortgage in the last 12 months
3. The loan scenario must benefit the borrower -- also called a “net tangible benefit” in the mortgage world.
The net-tangible-benefit test simply means that the benefit of doing the transaction outweighs any costs that are associated with the loan. As you know, any time that you go through with a transaction on something as large as your home, there are costs associated with the transaction and FHA wants to be sure that you don’t put yourself in a spot where those costs outweigh the benefits.
There are various closing cost alternatives with the FHA streamline refinance program, such as, no out-of-pocket closing costs or even no closing costs (where you accept a higher rate and allow the lender to pay your closing costs). But no matter what the scenario is, it must pass the net-tangible-benefit test.
Usually, the net tangible benefit is an equation that is done "behind the scenes" and not one that you can actually calculate as a borrower. But be assured, there is a high probability that your lender is calculating whether or not there is a net tangible benefit to your loan on your behalf.