USDA Streamlined Refinancing

What Is USDA Streamlined Refinancing?

USDA streamlined refinancing refers to a simplified mortgage-refinancing option offered through the United States Department of Agriculture (USDA). The USDA streamlined refinancing is intended for homeowners who purchased their homes using a USDA-issued home loan.

A Section 502 loan, which is a loan available to low-income individuals and households in rural areas, would be an example of this type of loan.

Understanding USDA Streamlined Refinancing

The USDA loan is a mortgage option available to some rural and suburban homebuyers. USDA Home Loans are issued by qualified lenders and guaranteed by the United States Department of Agriculture. 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.

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 prior to application, and the refinancing must result in the borrower's payment decreasing by $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 only documentation required is that which ensures the borrower’s income falls within current USDA limits. Most credit scores are accepted into the USDA streamlined refinance program.

This 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 upfront.

Additional Types of USDA Streamlined Refinancing

Additional refinancing programs include 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. Also, closing costs cannot be rolled into a new loan. Benefits of this particular option include no requirement to drop the payment by $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.

Another option is non-streamline refinance offered through Fannie Mae and Freddie Mac. This particular loan requires an appraisal. Also, the maximum loan amount is 100 percent of the home’s current value, plus the new guarantee fee. There are credit and income requirements as well. A borrower may seek this type of loan to avoid the $50 payment reduction requirement for the streamlined option or to de-list a borrower from the note. Also, this non-streamline option allows closing costs to be rolled into the new loan.