USDA Refinance Options for Your Home

USDA Refinance Options for Your Home

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If you're trying to refinance your USDA loan to save on your monthly payment or change the terms of your loan, there is likely a USDA refinance program available to you. The U.S. Department of Agriculture (USDA) offers a wealth of refinancing opportunities to borrowers who may be happy with their home but less pleased with the terms of their existing USDA mortgage.

Mirroring other government-backed mortgage programs, USDA offers existing USDA mortgage holders the opportunity to refinance through a variety of methods, including the USDA streamlined refinance, USDA streamlined assist and USDA non-streamlined refinance. This guide provides an in-depth look at the USDA refinance options available on the market.

Can you refinance a USDA mortgage?

Yes, if you're currently a borrower of a USDA home loan and are not currently delinquent on your mortgage, you may be able to refinance the loan through a USDA-backed refinance program or any other loan refinance program you qualify for. USDA loans are intended to help low-to-moderate-income buyers afford a home while also working to revitalize rural communities. By offering the opportunity to put 0% down and having more lenient qualifying requirements, this loan program is an attractive option for those who may not otherwise qualify for a mortgage.

Similarly, USDA’s refinance program is aimed at reducing the monthly payment for those who have a current USDA loan. For the most part, USDA’s refinance options — especially the USDA streamlined refinance and streamlined-assist — have been modeled after other government-backed refinancing programs, such as those offered by the Veterans Administration (VA) and the Federal Housing Administration (FHA).

However, unlike the two other government programs listed above, there is no USDA cash-out refinance option, meaning you can’t borrow more than you currently owe on your home. If that’s your goal, you may want to look into other loan programs.

USDA refinance program requirements and guidelines

If you are refinancing to secure a better rate or lower the monthly payments on your USDA loan, regardless of which USDA refinance program you choose, you must meet the following requirements:

  • You must hold a current USDA loan, either guaranteed or direct.
  • Your mortgage must have closed at least 12 months prior to your application.
  • You must be current with your mortgage for a certain period of time.

We cover the USDA refinance requirements for each of the available loan programs below.

USDA streamlined refinance guidelines

Current borrowers with a USDA guaranteed or direct loan without a subsidy may want to look into a streamlined refinance because it allows them to refinance without being subject to a new appraisal. It also allows them to add or delete borrowers from the loan. However, the new loan amount is limited to the balance of the current loan, including interest, and the upfront guarantee fee required to get a USDA loan.

To be considered for this type of refinancing, you must meet the following requirements:

  • Your new interest rate must be at or below the current rate.
  • You must be current with your mortgage for at least the past 180 days.
  • You must submit income documentation and undergo a credit review.
  • You must meet USDA’s debt-to-income ratio requirements.

USDA streamlined assist refinance guidelines

Borrowers with little to no equity in their home who need to refinance should consider the USDA’s streamlined assist program. Like the streamlined program, appraisals are not required, except in the case of direct borrowers who received a subsidy during their loan term. There are also no credit checks or debt-to-income ratio requirements.

To qualify for this loan, you must meet the following requirements:

  • You must be current on your mortgage for at least the last 12 months.
  • You must meet USDA’s income eligibility requirements for your area.
  • At least a $50 net reduction in payment is required.
  • All the original borrowers must remain on the loan, although new borrowers may be added.

USDA non-streamlined refinance guidelines

Unlike the other two refinance options, a new appraisal is required on the non-streamlined refinance, and the new loan amount is restricted to the new appraised value. However, borrowers should consider it if they don’t want to have to meet the $50 net reduction required by the streamlined assist. In addition, unlike the streamlined refinance, here, you’re allowed to roll closing costs and/or a subsidy recapture into your new loan.

In order to qualify for this type of refinance, you must meet the following requirements:

  • Your new interest rate must be at or below the current rate.
  • You must be current with your mortgage for at least the past 180 days.
  • You must submit income documentation and undergo a credit review.

Should you consider a USDA refinance?

If you’ve been asking yourself whether you should refinance, keep in mind that there are many reasons a borrower might consider a USDA refinance. They are as follows:

Easier qualifying process

Sticking with a USDA loan will give you a chance at a streamlined loan process, which does not require an appraisal. If you decide to go with another government-backed loan program, you will not be eligible for their streamlined offering, and your new loan amount will be subject to an appraisal.

Reduced annual fee

As of October 2016, the USDA reduced its annual fee from 0.5% of the loan value to 0.35%. If you purchased your house before this change was made, refinancing will help you cash in on the savings.

You can be underwater

The good news is USDA allows those who are underwater on their mortgage — or who owe more than their home is currently worth — to refinance. Since there is no appraisal requirement on a streamlined refinance, all you have to do is prove that you can make your mortgage payments for the required amount of time.

Kenny Zhu

Kenny is a Banking and Mortgage Research Analyst for ValuePenguin and has worked in the financial industry since 2013. Previously, Kenny was a Senior Investment Analyst at PFM Asset Management LLC. He holds a Bachelors of Science from Carnegie Mellon University, where he majored in International Relations & Politics. He is a CFA® charterholder.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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