If you have a U.S. Department of Agriculture (USDA) loan, you probably know the benefits. These loans can be accessed by millions of home buyers who want to buy or build a home in rural or other nonurban areas. And you don’t have to be a farmer or work in agriculture to take advantage of one.
But what if you want to refinance your USDA loan? While you can get a conventional mortgage refinance, a USDA Streamline refinance can make it much easier for homeowners with USDA loans to refinance in less time and with less hassle.
In this brief guide, you’ll learn how a USDA Streamline refinance works, its benefits, drawbacks and guidelines. By taking the time to understand what this unique program provides, you can decide if a USDA Streamline refinance is right for you.
What Is a USDA Streamline Refinance?
In general, a USDA Streamline refinance makes it easier for homeowners with USDA-backed loans to refinance their mortgage and secure better terms. Your mortgage must be a USDA Guaranteed Home Loan or a USDA Direct Home Loan, though other USDA-backed loans might also be eligible.
What Are the Different Types of USDA Streamline Refinances?
Currently, there are two main types of USDA Streamlines: the USDA Streamline-Assist refinance and the USDA Standard Streamline. While both of these programs have the same underlying goal – making it easier for homeowners to refinance – there are a few distinguishing factors that are important to pay attention to.
USDA Streamline-Assist refinance
Of the two USDA Streamlines, the USDA Streamline-Assist refinance is the more popular one. The loan doesn’t require a credit check or require homeowners to meet a debt-to-income (DTI) ratio requirement.
However, it does require 12 months of consecutive, on-time payments on your existing USDA loan. And homeowners must demonstrate that the refinance will lower their monthly mortgage payment by at least $50 (which can sometimes be difficult for lower-value properties).
USDA Standard Streamline
The USDA Standard Streamline refinance is similar to the USDA Streamline-Assist refinance, but there are a few more qualification hurdles to clear. To qualify, applicants must undergo a credit check. In most cases, you’ll need a credit score of at least 640, though this is not a universal threshold.
Homeowners must also meet their lender’s DTI requirements. A DTI below 36% is ideal, but the USDA has approved homeowners with DTIs as high as 41%. Lenders will also require 6 months of consecutive, on-time payments on your existing USDA loan.
For both programs, your household income can’t exceed 115% of the median household income in your area.
What Are the Benefits of a USDA Streamline Refinance?
As suggested, refinancing is a great way to secure a mortgage with a lower interest rate or generally better loan terms.
- Get a lower interest rate: You might be able to secure a substantially lower interest rate – especially if you secured your original mortgage when mortgage rates were notably higher than they are right now. Depending on the current value of your property, lowering your mortgage interest rate by just 1% can potentially save you tens of thousands of dollars in interest over the life of the loan.
- No appraisal required: With a USDA Streamline refinance, you don’t need to worry about having your home appraised. This can save money and protect you from losing equity if home values in your area have recently declined.
- Easier application process: Due to the “streamlined” component of this process, you may be able to avoid a credit check or having to meet a strict DTI standard with the Streamline-Assist. Even with the Standard Streamline, you’ll likely experience a more relaxed review of your finances with a USDA Streamline than you would with a conventional refinance.
- Restructure your loan: Refinancing can also help you restructure your loan, which can include changing the length of your loan.
What Are the Drawbacks of a USDA Streamline Refinance?
The only real drawback to a USDA Streamline refinance is not getting approved for one. That said, there are some limits and added costs you should be aware of.
- Upfront guarantee fee and annual fee: As we mentioned, USDA loans don’t require mortgage insurance. USDA loans do require an upfront guarantee fee that is 1% of the loan’s value. You have the option to fold this fee into your loan. You’ll also need to pay an annual fee that is equal to 0.35% of the loan’s value. You pay the annual fee in monthly installments.
- Limits on removing borrowers: Let’s say your spouse or partner’s name was on the mortgage and, down the road, you part ways. With the Streamline-Assist, you can only remove someone from a Streamline-Assist mortgage if the borrower has died. If your partner is still living, you may need to go through the slightly more involved process of the Standard Streamline refinance.
How Do You Apply For a USDA Streamline Refinance?
You can apply for a USDA Streamline refi through any USDA-approved lender. Reach out to your local, qualifying bank, credit union or online mortgage lender to see who can offer the right loan for your circumstances and needs.
Is a USDA Streamline Refinance Right for You?
Before beginning the application process, consider asking yourself if it’s financially advantageous for you to refinance right now.
If you are in a position where you can lower your interest rate, then refinancing might be a good idea – just make sure the benefits outweigh the fees.
Got a USDA Mortgage? Streamline Your Home Refinance
If you have a USDA mortgage, refinancing with a USDA Streamline loan could be very beneficial. When compared to other options, the process is straightforward and can be completed in a short amount of time for minimal cost.
This could be especially helpful if interest rates are lower than they were when you first bought your home or if you’re concerned about rates going up in the near future.
U.S. Department of Agriculture. “Obama Administration Announces Pilot Program to Help Rural Borrowers Refinance Mortgages, Get Lower Interest Rates.” Retrieved May 2022 from https://www.usda.gov/media/press-releases/2012/02/01/obama-administration-announces-pilot-program-help-rural-borrowers
U.S. Department of Agriculture. “Streamlined Assist Refinance Loans.” Retrieved May 2022 from https://www.rd.usda.gov/files/RD-RHS-SFHStreamlinedAssistRefinanceLoans.pd
U.S. Department of Agriculture. “Single Family Home Loan Guarantees.” Retrieved May 2022 from https://www.rd.usda.gov/sites/default/files/fact-sheet/508_RD_FS_RHS_SFHGLP.pdf
U.S. Department of Agriculture. “USDA Loan Refinancing Notes.” Retrieved May 2022 from https://www.rd.usda.gov/files/RD-SFH-RefinanceNotes.pdf
U.S. Department of Agriculture. “USDA Rural Development Reducing Fees Make Home Loans More Affordable.” Retrieved May 2022 from https://www.rd.usda.gov/newsroom/news-release/usda-rural-development-reducing-fees-make-home-loans-more-affordable