WHAT IS USDA Rural Refinance Pilot Program

The USDA Rural Refinance Pilot Program is a mortgage-refinancing option offered in some states and territories by the United States Department of Agriculture (USDA). The USDA rural refinance pilot program is available to homeowners who purchased their home using a Section 502 Direct or Guaranteed loan. These are loans made available to low-income individuals and households in rural areas.

BREAKING DOWN USDA Rural Refinance Pilot Program

The USDA Rural Refinance Pilot Program is a way to reward rural homeowners for consistency in payment, keep them in their houses when their local economies are suffering and to keep these local economies as stable as possible. It is available to homeowners in designated rural areas eligible for USDA Section 502 and guaranteed mortgages. The new loans are fixed-rate mortgages guaranteed not to exceed a rate designated by the USDA rural loan program guidelines. The interest rate charged on the new loan is at a fixed rate at least 100 basis points below the interest rate on the current loan.

All refinance mortgages are 30-year mortgages. In addition to the principal balance, guarantee fees, accrued interest and lender fees may be included in the amount borrowed. Lenders may also charge an origination fee. Borrowers are not permitted to cash out from the refinance loan. New borrowers may be added to the mortgage but no owners may be removed from the original mortgage unless they are deceased or legally divorced from the primary mortgage-holder.

USDA Rural Refinance Pilot Program loans cannot be processed through the Guaranteed Underwriting System (GUS) and must be processed and underwritten manually.

Eligibility for the USDA Rural Refinance Pilot Program

To be eligible for the USDA Rural Refinance Pilot Program, borrowers do not need a new credit report or property inspection. Homeowners looking to refinance a guaranteed loan do not need to have their home appraised, but those who have direct loans do need to have an appraisal to calculate how much of the original subsidy is recaptured by converting a direct loan to a guaranteed loan. This program is only available for borrowers who have a Section 502 mortgage or guaranteed direct mortgage through the USDA lending program, not through other lenders.

To be eligible to refinance a USDA rural mortgage, lenders must meet current income requirements for the total household, live in a property that is currently in one of the eligible rural zones or that was in an eligible rural zone at the time the original mortgage was take out and have made regular mortgage payments for the previous 12 consecutive months.