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USDA Streamline Refinance Program
The USDA Streamline Refinance Program enables borrowers to refinance an existing USDA home loan with significantly fewer borrower qualification requirements than a standard mortgage refinance. Officially called the USDA Streamlined-Assist Refinance, the program is designed to make it easier for borrowers to refinance into a more affordable mortgage with a lower monthly payment.
The main benefits of a USDA Streamline Refinance are that it does not require borrowers to obtain a property appraisal report, provide a credit report or meet debt-to-income ratio requirements. Because the program does not require an appraisal, there is no loan-to-value (LTV) ratio limit which means that borrowers who are underwater on their mortgage are eligible for the program. If you are underwater on your home it is usually impossible to refinance your mortgage with regular refinance programs.
By simplifying the loan approval process, the USDA Streamline Refinance Program enables more borrowers to refinance into affordable mortgages, which saves them money and time. For example, eliminating the appraisal and credit report fees saves the borrower hundreds of dollars in closing costs. Additionally, USDA Streamline Refinances do not require borrowers to obtain a property inspection report, which reduces costs further. The more time-efficient application process also means applicants close their loan faster. A typical streamline USDA Streamline Refinance takes less than a month to close as compared to more than a month or potentially longer for a standard mortgage.
Refinancing a USDA home loan with no appraisal report, credit score or maximum LTV ratio may sound impossible. There are several USDA Streamline Refinance requirements, however, that you must meet to qualify for the program. Most important, you must be current on your mortgage with on time payments for the past year. This is because if you are current on your existing loan and have made your payments on time, you should be able to afford your new lower mortgage payment after you refinance.
You apply for a USDA Streamline Refinance with approved private sector lenders such as banks, mortgage banks and mortgage brokers. The USDA does not promote any particular lender but offers a list of approved lenders as well as a list of Guaranteed Loan Program local contacts on the USDA web site. Borrowers seeking to use the program to refinance a direct loan should contact the USDA office in their state.
We recommend that you shop multiple lenders to find the best loan terms when you refinance your USDA home loan. Contact multiple lenders in the table to understand if they offer the USDA Streamline Refinance program and to compare mortgage terms. Comparing lenders and loan proposals is the best way to find the mortgage and the program that are right for you.
We review the key program eligibility guidelines below. Review the guidelines to determine if you are eligible for a USDA Streamline Refinance.
Loan Status
Borrowers must be current on their USDA home loan and not delinquent.
Payment History
Applicants must have paid their mortgage on time for twelve consecutive months immediately prior to applying for a USDA Streamline Refinance.
Property Eligibility
The mortgage being refinanced must be an existing guaranteed or direct USDA home loan on an owner-occupied, single-family primary residence. Properties eligible for the program are located in designated rural areas and small communities.
Mortgage Rate
The mortgage rate on your new loan must be less than or equal to the rate on your existing loan. As an added borrower benefit, USDA mortgage rates are typically .125% - .500% lower than the rates for most conventional mortgage programs.
Monthly Payment Savings
To be eligible for the program, your new total monthly housing payment including your mortgage, property tax and homeowner insurance -- also known as PITI -- must be at least $50 less than you current monthly payment.
Loan-to-Value (LTV) Ratio
Because the USDA Streamline Refinance Program does not require an appraisal report, there is no maximum loan-to-value (LTV) ratio. This is especially helpful for underwater borrowers as it can be extremely challenging to refinance an underwater mortgage. For example, if your property value is $100,000 and you loan amount is $110,000, your LTV ratio is 110%. As long as you can afford your new monthly payment, you can still use a USDA Streamline Refinance even though your LTV ratio is greater than thee 100% limit for a standard USDA home loan.
Please note that guaranteed USDA home loans do not require an appraisal report while subsidized direct USDA loans do require an appraisal.
Mortgage Program
The program only permits 30 year fixed rate mortgages. Adjustable rate mortgages (ARMs) and interest only mortgages are not eligible for the program.
Type of Refinance
The USDA Streamline Refinance Program does not permit cash-out refinances. Only rate and term refinances are allowed.
USDA Mortgage Insurance
Like with the standard USDA Home Loan Program, borrowers are required to pay an up-front and ongoing USDA mortgage insurance premium, also called a guarantee fee. Similar to private mortgage insurance (PMI) for conventional mortgages and the mortgage insurance premium (MIP) for FHA loans, the ongoing USDA mortgage insurance fee is an additional cost to borrowers on top of their monthly mortgage payment. Mortgage insurance protects lenders in the event that borrowers default on their loan. As of October 1, 2016, the up-front USDA insurance fee is 1.0% of the loan amount and the ongoing insurance fee is 0.35% of the loan.
Prepayment Penalty
There is no prepayment penalty on USDA home loans.
Flood Insurance
Borrowers are required to obtain flood insurance if the property being financed is located in federally-designated flood zone.
Our personalized mortgage quote feature enables your to review loan proposals from leading lenders in your area. Our quote form is free, no obligation, easy-to-use and does not impact your credit. Shopping multiple lenders is the best way to save money when you refinance your USDA home loan.
As outlined below, USDA Streamline Refinance requirements are much more flexible than the requirements for standard refinance programs. The reduced and relaxed requirements mean the program is accessible to more borrowers of all income levels.
Borrower Credit Score
USDA Streamline Refinances do not require a credit score which is a significant advantage for applicants who have experienced a drop in their score. Usually applicants with lower credit scores pay a higher mortgage rate but this does not apply to the program.
Borrower Debt-to-Income Ratio
The program does not apply a maximum debt-to-income ratio which helps applicants who have experienced a decrease in their monthly gross income or an increase in monthly debt expense. Instead of limiting how much of your income you can spend on your mortgage payment, lenders focus on your past payment history to determine if you qualify for the mortgage. Not applying a debt-to-income ratio means more borrowers can qualify for a Streamline USDA Refinance.
Ability to Repay the Loan
Although the USDA Streamline Program does not use a credit report or apply a maximum debt-to-income ratio, lenders are required to verify that borrowers have the financial ability to repay the loan. This is usually accomplished by reviewing the borrower’s on time payment history and applying guidelines similar to the Qualified Mortgage (QM) criteria to ensure that borrowers can afford their monthly payment and repay their mortgage.
Income Limits
Because the program does not use debt-to-income ratios, borrower income limits also do not apply. This feature may be helpful for applicants whose income has increased since they obtained their original mortgage as standard USDA home loan programs apply borrower income limits.
Home Inspection Report
You are not required to obtain a home inspection report to be eligible for the program.
Use the FREEandCLEAR Lender Directory to find lenders that offer the USDA Streamline Refinance program and other refinance assistance programs
Sources
"Streamlined Assist Refinance Loans." USDA Rural Development. U.S. Department of Agriculture, 2016. Web.
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