USDA Loan Refinancing Guide
USDA loans already have low-interest rates, but sometimes, rates drop, and if that happens, you may want to refinance your loan to take advantage of them.
Fortunately, the U.S. Department of Agriculture offers several refinancing options: the USDA Streamline Refinance, the USDA Streamline-Assist, and a non-streamlined refinance.
It's also worth noting that you're not limited to USDA refinance programs — you can refinance a USDA loan into a conventional loan, though you'll typically need a credit score of at least 620 and a debt-to-income ratio of 43% or lower.
Recent USDA updates have reduced the typical waiting period to refinance from 12 months to as little as 180 days for eligible borrowers. Here’s what to know about those options if you’re eyeing a refinance.
One option for refinancing a USDA loan is a USDA Streamline Refinance. It’s been designed to make the process as easy and efficient as possible.
Similar to the VA’s Interest Rate Reduction Refinance Loan (IRRRL), the USDA Streamline Refinance allows you to refinance a USDA loan into a new, lower-interest-rate mortgage without needing a property appraisal. You can also use the USDA Streamline Refinance to add or remove a borrower from the loan.
Not all USDA borrowers are eligible for a Streamline Refinance. For one, you have to currently have either a USDA Guaranteed Loan or a USDA Direct Loan. You also need to qualify for an interest rate that’s the same or lower than your current loan’s rate.
Beyond that, you also must:
An important note about these refinances: you cannot use USDA Streamline Refinances (or any USDA refinance program, for that matter) to take cash out of your home equity.
Another option is the USDA Streamline-Assist Refinance, which removes even more barriers from the USDA refinance process.
With this type of refinance, you don’t need a new appraisal, there are no credit or income checks, and you can finance the guarantee fee, closing costs, and more into the loan balance.
The USDA Streamline-Assist program has similar requirements to the Streamline program, with a few additional conditions.
You also must:
Like Streamline Refinances, USDA Streamline-Assist Refinances allow you to add a new borrower to your loan. However, you cannot remove a borrower using the program.
This can be especially useful if your home's value has dropped, since you're not relying on an appraisal to qualify, though be aware that refinancing in this situation could leave you owing more than the home is worth.
The USDA Non-Streamline Refinance is very similar to the Streamline program. The big difference? You must get a new property appraisal.
A non-streamline refinance might be a good refinancing option if you can’t achieve the $50 payment reduction required for the Streamline-Assist program.
Just remember: refinancing comes with closing costs and a guarantee fee. If you’re unable to reduce your rate or payment, refinancing your loan and taking on these costs may not be a good financial strategy.
Also, keep in mind that refinancing replaces your current loan with a new one, resetting your term from Year 1. If you're well into a 30-year loan, you could pay more interest over the long run.
Refinancing a USDA loan can be a smart financial move when the timing and terms are right. Whether you opt for the simplicity of a Streamline-Assist, the flexibility of a standard Streamline, or the conventional route, the key is making sure the numbers work in your favor with lower payments, a better rate, or both.
Before moving forward, weigh the closing costs, the reset of your loan term, and your long-term financial goals. When in doubt, speak with a USDA-approved lender who can walk you through your options and help you find the best path forward.
