What you need to know about USDA streamline refinance loans

If you have a USDA home loan and are looking to refinance, a USDA streamline refinance loan may be a good fit for your needs.  (Shutterstock)

Borrowers with USDA loans may be eligible to refinance with a USDA streamline refinance loan. If you can refinance to a mortgage loan with a lower interest rate than your current one, you can potentially lower your monthly payments, spend less on interest, and pay off your loan faster. 

Keep reading to learn how USDA streamline refinance loans work, how to qualify for one, and how to apply for this type of refinance loan.

You can only get a USDA streamline refinance through the U.S. Department of Agriculture. Burt if you’re considering other types of mortgage refinancing, visit Credible to compare mortgage refinance rates from various lenders, all in one place.

  • What is a USDA streamline refinance loan?
  • Types of USDA streamline refinance loans
  • Eligibility requirements for a USDA streamline refinance
  • Pros and cons of a USDA streamline refinance
  • How to apply for a USDA streamline refinance
  • Is a USDA streamline refinance right for you?

What is a USDA streamline refinance loan?

Refinancing a mortgage involves replacing a current mortgage loan with a new one. Ideally, your new loan will have a lower interest rate — this can help you lower your monthly payments and save on interest over the life of your loan. In some cases, refinancing can even make it easier to pay off a mortgage loan faster.

USDA streamline refinance loans are a refinancing option for borrowers who already have a USDA mortgage loan and are current on payments. Even if you have little or no equity in your home, you’re still eligible to refinance through this program, which is a unique advantage of this loan type. 

You won’t have to do a credit check to apply for a USDA streamlined-assist refinance loan, which makes this a good fit if you don’t qualify to refinance through a conventional lender, such as a bank. Instead, you’ll need to provide proof of consistent on-time payments (12 months).

Types of USDA streamline refinance loans

When it comes to USDA refinance loans, you have three options: streamlined-assist refinance loans, standard streamline refinance loans, and non-streamlined refinance loans. Each type is a little different, so you’ll want to compare them to find out which option is best for you. 

Streamlined-assist refinance loan

  • Eligible loan costs/maximum loan amount — You may refinance the principal and interest balance, closing costs, and upfront guarantee fee
  • Appraisal — Only required if you’re a Direct Loan borrower who received a payment subsidy (a subsidy is a form of payment assistance available to eligible low-income homeowners who get a USDA Direct Loan)
  • Add borrowers — Yes
  • Remove borrowers — Only deceased borrowers can be removed from the loan
  • Credit history requirements — Your loan must be paid as agreed 12 months before you apply

Standard streamline refinance loan

  • Eligible loan costs/maximum loan amount — You may refinance the principal and interest balance, closing costs, and upfront guarantee fee
  • Appraisal — Only required if you’re a Direct Loan borrower who received a payment subsidy
  • Add borrowers — Yes
  • Remove borrowers — Yes (one original borrower must remain on the loan)
  • Credit history requirements — Full credit review; your loan must be paid as agreed six months before you apply, and you must meet Chapter 10 requirements

Non-streamlined refinance loan

  • Eligible loan costs/maximum loan amount — You may refinance the principal and interest balance, closing costs, upfront guarantee fee, and the subsidy recapture due (up to the new appraised value), if applicable. Subsidy recapture happens when you sell, transfer, or no longer occupy the property — you must repay all or part of the subsidy at this point. The amount you’ll repay is calculated when the loan is paid off.
  • Appraisal — Required
  • Add borrowers — Yes
  • Remove borrowers — Yes (one original borrower must remain on the loan)
  • Credit history requirements — Full credit review; your loan must be paid as agreed six months before you apply, and you must meet Chapter 10 requirements

Eligibility requirements for a USDA streamline refinance 

Like any lending product, USDA streamline refinance loans have some eligibility requirements you must meet, including: 

  • Loan type — Your current loan must be a 502 Direct or Guaranteed Loan.
  • Loan close date — The loan must have closed at least 12 months before you apply for refinancing.
  • Occupancy — The property must be owner occupied and the household must meet the applicable adjusted annual household limit.
  • Location — Even if the home is no longer located in an eligible rural area, you may still be eligible to refinance.

If you’re considering a conventional refinance, Credible lets you compare mortgage refinance rates from multiple lenders in minutes.

Pros and cons of a USDA streamline refinance

USDA streamline refinance loans have benefits and drawbacks. Let’s take a closer look at the pros and cons you should consider before you apply for this type of refinance loan: 

Pros 

  • Lower interest rate — With a USDA streamline refinance loan, you get a lower interest rate, which can potentially save you thousands of dollars over the life of your loan.
  • Simplified application process — One of the main benefits of a USDA streamline refinance loan is that you generally don’t need to undergo a property inspection or home appraisal, which can make the process easier.
  • Relaxed requirements — A USDA streamlined-assist refinance doesn’t require proof of your credit score or debt-to-income ratio.
  • No equity required — You don’t need to have equity in your home to qualify. Even if you’re underwater on your mortgage, you can still qualify to refinance.
  • Roll costs into your new loan — You can roll your escrow charges and closing costs into your new loan balance, which means you can refinance without paying any cash upfront.

Cons 

  • Inflexible loan terms — USDA streamline refinance loan terms must be fixed for 30 years.
  • No secondary financing — You can’t include forms of secondary financing, like USDA Leveraged Loans, in the new loan.
  • No cash-out refinance option — You generally can’t refinance to get cash out, except for reimbursement of eligible closing costs paid from your personal funds or overage from your escrow account.
  • Certain fees can’t be included in the loan amount — This includes late fees or unpaid fees.
  • Comes with fees — This loan comes with an upfront guarantee fee and an annual fee.

How to apply for a USDA streamline refinance

If you’re interested in applying for a USDA streamline refinance loan, you’ll generally take the following steps:

Is a USDA streamline refinance right for you?

If you’re thinking about refinancing, you may be wondering if a USDA streamline refinance loan is the right fit for you. 

If you already have a USDA mortgage loan and are current on your payments, then a USDA streamline refinance loan may suit your needs. If you have low or no equity in your home, you may find it hard to refinance outside of the USDA streamline refinance program. This option may be a good fit for you if you’re looking for a more convenient application process.

Keep in mind that just because you have a USDA home loan doesn’t mean you have to refinance through a USDA streamline refinance loan; you can consider other options and shop for the best rates and terms with mortgage refinance companies and banks.

If you don’t qualify for a USDA streamline refinance, you can check out Credible to compare mortgage refinance rates from various lenders without affecting your credit. 

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