USDA Loan Refinancing
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 options for refinancing: the USDA streamline refinance, the USDA streamline-assist, and a non-streamlined refinance. 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 the same requirements as the Streamline program above.
You also must:
Like Streamline Refinances, USDA Streamline-Assist Refinances allow you to add a new borrower to your loan. You cannot, however, remove a borrower using the program.
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.
How soon can you refinance a USDA loan?
You can refinance a USDA loan as long as it has been at least 12 months since you closed on your original loan.
Can I switch from a USDA loan to a conventional loan when refinancing?
Yes, you can refinance a USDA loan into a conventional loan, but keep in mind, the eligibility requirements are stricter for conventional loans. You will usually need at least a 620 credit score and a debt-to-income ratio of 43% or lower.
Can I refinance my USDA loan if my home’s value has dropped?
Not all USDA refinances require an appraisal, so it is possible to refinance your loan if your home’s value has dropped. Just be careful with this move, as it could mean owing more on your home than it’s worth. This is called being upside-down on your mortgage and could spell financial trouble if you need to sell your house.
Are there closing costs with a USDA refinance?
USDA refinances come with closing costs, including a guarantee fee that goes toward funding the USDA loan program. Often, you can finance these expenses and roll them into the loan balance, though this increases your loan balance and the total interest cost over time.
Can I remove a co-borrower when refinancing my USDA loan?
That depends on what type of refinance you qualify for. With streamlined and non-streamlined refinances, you can both add and remove borrowers. With streamlined-assist refinances, you can only add a borrower.
Will refinancing my USDA loan reset my loan term?
Yes, refinancing your USDA loan will mean replacing your current USDA loan with a new one — complete with a new rate and term. So, for example, if you refinance your current 30-year USDA loan into a new, 30-year one, you will start at Year 1 on the replacement mortgage, no matter how far into the old loan you were.
