You Can Refinance Using USDA Home Loans
Believe it or not, you can refinance under very favorable rates using a USDA Guaranteed home loan.
When people think about USDA home loans, they are usually thinking about purchasing a home outright. However, if your existing home is in a qualified rural area, then you can have a chance to refinance your home with USDA under very favorable rates.
USDA refinancing is available for existing users of the USDA program. You cannot convert an existing home loan into USDA financing unless you have already been part of the program and have used USDA financing to purchase your home.
USDA refinancing is used for existing members of the USDA program who find out that the current market rates are lower than the rates that they locked in when they joined the program.
USDA refinancing is a streamlined process that is actually very easy for home buyers to get through quickly. This is important because rates change, and you must act fast to succeed!
If you qualified for a USDA home loan and you still qualify under the USDA guidelines, then you can probably get a USDA refinance under a streamlined process that is very easy to do.
Thousands of households in rural areas take advantage of streamlined USDA refinancing each and every year. If you already have a USDA loan and you would still qualify under the terms of the USDA loan program, then you will enjoy a quick and easy process.
The USDA has recently taken action to make sure that it is very easy to refinance your existing USDA loan. In many cases, you will not have to submit all of the information that you did when you first got the USDA loan.
Plus, since the USDA handles all of the refinancing within its own agency, you don't have to wait a long time for paperwork to go from one part of the federal government to the other. The steps are centralized to work for you.
What are the requirements? The basic requirements are:
- The mortgage that you are refinancing needs to already be a USDA loan, it cannot be converted
- You must materially benefit from the refinancing, such as by getting lower rates or payments
- You must already be current on all the payments related to your USDA home loan
Naturally, there is no reason to refinance your loan if you will not get some kind of financial benefit from it. Typically, families refinance in order to lock in a lower rate that can make it possible to pay off the mortgage sooner.
If you are already locked into the USDA program and your home has declined in value as a result of the real estate market crash, then that is another good reason to look into refinancing.
Refinancing is completed within just a few days for people who qualify, so you have the chance to take advantage of changing home market rates when doing so is most advantageous for you.
Rural real estate markets have a tendency to be much more volatile than other markets and can 'crash' harder and for longer periods of time than urban markets. That being the case, people in rural areas often benefit from being aggressive about seeking out refinancing opportunities.
The USDA created its Streamline Refinancing Program in order to service the thousands of families all over the United States who are currently a part of the USDA home loan program.
Although USDA mortgage loan rates are highly competitive, the architects of the program did realize that the housing market can change quickly and that lower rates may be possible later.
USDA Streamline Refinancing gives families the chance to take advantage of those better rates.
Streamline Refinancing was implemented under the current presidential administration as part of a long-term plan to help people in financial difficulty to maintain their homes and property while living in dignity. It provides options for those who do not qualify for private loan refinancing.
As a responsible homeowner, you likely can move forward on your USDA Streamline Refinancing right away if you are current on your existing USDA mortgage.
There are some basic requirements that you should also know about:
- You need to already have a Direct or Guaranteed USDA mortgage loan
- You can't take out cash as part of your USDA loan refinancing strategy
- You have to be able to lower your interest rates or payments as a result
The USDA conducts a quick financial analysis to be sure that refinancing will be a positive step in your financial plan. It does not allow you to refinance if doing so will not improve your home finances by giving you a better rate or lower payments, so you don't have to worry.
What can you do for refinancing if you are not eligible for a USDA refinance?
There are many other federal loan programs that also offer streamlined refinancing to qualified individuals. If you partner with our loan team, you may qualify for VA, FHA, and other loans.
Before executing your streamlined refinance, make sure you are in one of the 19 states that qualify for the program. When you refinance, your debt to income ratio and other financial factors will be reviewed to qualify, just as during the original loan process.
You do not need to execute a new home appraisal to get USDA refinancing. The total loan amount will include the principal value of the home loan plus a one-time .5% fee. Remember, you can't finance interest, lending fees, or closing costs on a refinance.
If necessary, there is also a 'non-streamlined' refinance option that requires a new appraisal. Under a non-streamlined refinance, you can finance costs that are not typically eligible.
Why are USDA loans special?
USDA loans are fixed rate, competitive loans that offer no money down for people who are establishing a permanent residence by buying a home in a qualified rural area. The loan is guaranteed by the federal government and has flexible credit requirements.
What is the Guarantee Fee?
The Guarantee Fee, also called PMI, is a monthly insurance fee that helps to offset the costs to the lender in the event that the borrower defaults. You can only avoid this cost if you put down a 20% down payment.
What are the other eligibility requirements?
The borrower must be at least 18, a U.S. citizen or qualified alien must be planning to occupy the home full-time as a permanent residence, and must be unable to qualify for mortgage loan financing through conventional means.
What income is considered in the USDA loan?
All household income is considered toward your income limits on this loan. However, there are income adjustments available based on household size, dependents, and disability.
Who may co-sign a USDA loan?
Any individual who will be living with you in the USDA financed property may be eligible to co-sign. Ideally, this person will bring additional income and creditworthiness.
What are the main program benefits?
Borrowers benefit from zero down payment, no fixed limit on loan amounts, the option to finance closing costs, the ability to negotiate expenses with the seller, and much more.
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