USDA Loan Refinancing Eligibility

Refinance with USDA Loan Refinancing

Those who have previously purchased a home using the USDA Guaranteed or USDA Direct Home Loan program may be eligible to refinance their current mortgage into a lower rate.

The USDA offers refinancing options so that rural and suburban homeowners have the opportunity to take advantage of lower interest rates.

To qualify for a USDA Loan refinance:

  • Current mortgage is a Section 502 Direct or a Guaranteed Loan.
  • Home is your primary residence.
  • Most recent 12 mortgage payments have been made on time.
  • Gross household income is under income limit.
  • Need 2 years history of employment.

Properties that are now not currently located in an eligible area but were eligible at the time of closing are STILL eligible for refinancing.

USDA Rural Single Family Housing Program offers 3 refinancing options:

It may seem a little confusing with the different loan types having very similar titles but don’t worry, in this section we will break down all 3 loan types for you.

All 3 USDA refinance programs were designed to help families refinance into a lower interest rate and lower their mortgage payment. USDA requires that the new interest rate can’t exceed the rate of the existing USDA loan and that the new USDA mortgage be a 30 year fixed. Even though the term of your mortgage will be extended you will have a lower payment. Since there is no pre-payment penalty you can pay extra on your monthly mortgage payment to pay off your loan early.

What is a USDA Streamline Assist Refinance?

Probably the favorite out of the group, because with a streamline assist an appraisal is not required. It doesn’t matter what is the current value of your home, USDA will lend 100% of what you currently owe. The new USDA Loan can include the upfront guarantee fee, principal, interest, closing costs, and funds to establish a new tax and insurance escrow account. Meaning, no out of pocket costs!

This loan is a good fit for home owners that do not have extra cash saved up for closing costs and are looking to lower their mortgage payment.

What are the requirements for a Streamline Assist Refinance?

  1. Refinance has to save you $50 or more on your mortgage payment.
  2. Must have existing USDA mortgage for 12 months prior to refinancing.
  3. Show 12 months mortgage payments made on time.
  4. Co-borrower can be added but no one can be removed from original loan. One original borrower must remain on the loan.
  5. No debt to income requirements.
  6. USDA doesn’t have a minimum credit score but your lender may have a credit score requirement.

» More: Check your USDA Loan eligibility

What is a USDA Non-Streamline Refinance?

The Non-Streamline does require an appraisal and the maximum USDA Loan amount cannot exceed the appraised value of the home, this amount excludes the upfront guarantee fee. The total loan amount can include the upfront guarantee fee, principal, interest, some closing costs and funds for tax and insurance escrow account.

This loan is a good fit for home owners that want to remove a borrower from the original USDA Loan. For example: you have gone through a divorce and need to remove your ex-spouse. Then this is the loan for you, keep in mind that at least one original borrower must remain on the loan. Also, be prepared for out of pocket costs, like the appraisal which ranges between $500 and $700.

What are the requirements for a Non-Streamline Refinance?

  1. Refinance up to the appraised value of home.
  2. Must have existing USDA mortgage for 12 months before refinancing.
  3. Show 6 months mortgage payments made on time.
  4. Co-borrower can be added or removed from original loan, with one original borrower remaining on the loan.
  5. Credit score over 620.
  6. 29% or less of monthly income can go toward paying mortgage.
  7. 41% or less of monthly income can go towards total paying total monthly debt including mortgage. Can be higher with compensating factors.

» More: Check your USDA Loan eligibility

What is a USDA Streamline Refinance?

The Streamline Refinance does not require an appraisal however, the new USDA Loan amount cannot be greater than the original USDA loan, excluding the upfront guarantee fee. The new loan can include the upfront guarantee fee, principal, interest, some closing costs and funds for tax and insurance escrow account.
This loan can benefit home owners that have equity built up in their home and money saved up for closing costs. The total loan will be less than a streamline assist refinance because you won’t be financing all closing costs.

What are the requirements for a Streamline Refinance?

  1. Refinance up to the original loan amount.
  2. Must have existing USDA mortgage for 12 months before refinancing.
  3. Show 6 months mortgage payments made on time.
  4. Co-borrower can be added but not removed from loan, with one original borrower remaining on the loan.
  5. Credit score over 620.
  6. 29% or less of monthly income can go toward paying mortgage.
  7. 41% or less of monthly income can go towards total paying total monthly debt including mortgage. Can be higher with strong compensating factors.

» More: Check your USDA Loan eligibility