What Is USDA Streamlined Refinancing?
USDA streamlined refinancing refers to a simplified mortgage-refinancing option offered through the U.S. Department of Agriculture (USDA). USDA streamlined refinancing is intended for homeowners who purchased their homes using a USDA-issued home loan and provides an option for borrowers to refinance for more affordable loan terms.
- The USDA streamlined refinancing option provides current USDA loan borrowers with low or no equity the opportunity to refinance for more affordable payment terms.
- USDA loans are designed to provide homebuyers with lenient eligibility requirements that help low- to moderate-income families purchase a home in mostly rural areas.
- The streamlined process offers many borrowers refinancing with no new appraisal or home inspection.
Understanding USDA Streamlined Refinancing
The USDA loan is a mortgage option available to some rural and suburban homebuyers. The USDA offers home loans directly and guarantees loans issued by qualified lenders. Qualification standards for these home loans are lenient compared to those of other mortgages. USDA loans are designed to help low- to moderate-income borrowers purchase a home in mostly rural areas. A Section 502 loan, which is a loan available to low-income individuals and households in rural areas, is an example of this type of loan.
The USDA has two programs to refinance direct and guaranteed loans—streamlined-assist and standard streamlined.
USDA refinancing is similar to other federal streamlined refinancing options, such as the Federal Housing Administration's (FHA) streamline refinancing, VA streamline refinancing from the Department of Veterans Affairs, and Home Affordable Refinancing Program (HARP) from government-sponsored enterprises Fannie Mae and Freddie Mac.
A streamlined refinanced loan even allows you to wrap your closing costs and escrow charges into the new loan amount. That helps homeowners receive a zero out-of-pocket refinance for which no cash is needed up front.
Eligibility Requirements for USDA Streamlined Refinancing
The eligibility requirements for the most popular USDA refinancing program, known as streamlined-assist, are straightforward. To be eligible, the home to be refinanced must be the borrower's primary residence, the home must have its mortgage from a USDA direct home loan or a USDA guaranteed home loan, the borrower must have made 12 consecutive on-time payments before the refinancing application, and the refinancing must result in the borrower's payment decreasing by at least $50 per month.
Unlike a typical loan application, there are no credit report, home appraisal, or property inspection requirements. Current income is not a qualifying factor either. The borrower must only document that their income falls within current USDA limits.
Another refinancing program includes the USDA standard streamline program. Similar to the streamlined-assist program, no appraisal is required and homeowners that are underwater on their mortgage are eligible, which follows generally the same rules as the streamlined-assist loan.
However, homeowners have to provide proof of current income and meet certain debt-to-income requirements. Benefits of this particular option include no requirement to drop the payment by at least $50 and existing borrowers listed on the note can be removed as long as one of the original borrowers remains on the loan. The latter can be beneficial in the case of divorce.
USDA Streamlined Refinancing Rates
To refinance a guaranteed loan, check out the USDA's list of approved lenders. They offer USDA loans, but the USDA does not recommend specific lenders. You'll need to shop around to make sure you're getting the best terms and a lower interest rate.
The interest rate for direct loans as of October 1, 2021 is 2.5%, but your effective rate can be as low as 1% after subsidies.
What Loan Refinancing Options Does the USDA Offer?
The USDA offers direct loans and guarantees loans issued by private lenders to low- and moderate-income borrowers in rural areas. It oversees two programs to refinance these loans—streamlined-assist and standard streamlined.
What Are the Requirements to Refinance a USDA Loan?
Under either program, the home to be refinanced must be a primary residence and have a mortgage from a USDA direct or guaranteed home loan, among other requirements. Neither requires a home appraisal or inspection. However, qualifying for a standard refinance is harder. For example, in contrast to streamlined-assist refinancing, standard streamlined refinancing takes into account debt-to-income (DTI) ratios.
What Are the Benefits of USDA Streamlined Refinancing?
Streamlined refinancing offers a hassle-free way to refinance a USDA mortgage. The main benefit is lower loan payments.