Refinance a USDA loan

USDA mortgage refinance applicationThe United States Department of Agriculture (USDA) offers three refinance programs for existing USDA borrowers; the Streamlined-Assist refinance, Standard streamline refinance and the Non-streamline refinance.

1. USDA Streamlined-Assist refinance program

The streamlined assist refinance program provides current USDA direct and guaranteed home loan borrowers with low or no equity the opportunity to refinance for more affordable payment terms.

There must be at least a $50 reduction to principal, interest, real estate taxes and homeowners insurance (PITI) payments compared to current mortgage payment.

A new appraisal is not required, except for direct borrowers who received subsidy during their loan term.

The Borrower(s) is not required to show employment documentation

Direct borrowers that owe subsidy recapture may subordinate this amount if they are unable to pay it in full.

The USDA requires 12 consecutive on-time payments prior to the refinance application. There is no credit score requirement!

Additional borrowers can be added to the refinance, but borrowers cannot be removed

No home inspections or calculation of debt ratios is required.

15-year or 20-year loans terms are not available, 30-year fixed loan terms only.

Applicants’ income may not exceed the adjusted annual income limit for the county or metropolitan statistical area where the dwelling will be located. Check income eligibility for the program.

Underwater homes are eligible. An underwater home is a situation where the borrower owes more than the value of the home.

The Streamlined-Assist allows the borrower to roll in the closing costs and escrow costs into the new loan amount. In short, a zero out-of-pocket refinance for which no cash is needed up front.

Subordinate financing such as home equity seconds and down payment assistance “silent” seconds cannot be included in the new loan amount. The SFHGLP [Single Family Housing Guaranteed Loan Program] may not be used to refinance a leveraged loan from a non- Rural Development source that was closed simultaneously with a Section 502 Direct Loan. Any existing secondary financing must be subordinate to the new first lien.

Applicants are not eligible to receive “cash out” from the refinance transaction. However, for non-streamlined and streamlined-assist refinance loans applicants may receive reimbursement from loan proceeds at settlement for their personal funds advanced for eligible loan purposes that are part of the refinance transaction, such as an appraisal fee or credit report fee. At loan closing, a nominal amount of “cash out” to the applicants may occasionally result due to final escrow and interest calculations.

Unpaid fees, past-due interest, and late fees/penalties due the servicer cannot be included in the new loan amount. SOURCE: USDA CHAPTER 6: LOAN PURPOSES Revised (03-15-17)  

2. The Standard streamline refinance

The Standard streamline refinance is similar to the Streamlined-Assist refinance program.

1.) A new appraisal is not required for existing guaranteed loan borrowers. A direct loan borrower will be required to obtain a new appraisal if they have received payment subsidy in order to determine the amount of subsidy recapture due. If subsidy recapture is due, the amount cannot be included in the newly refinanced loan. Subsidy recapture must be paid with other funds or subordinated to the new guaranteed loan. Underwater homes are eligible.

2.) The new maximum loan amount may not exceed the original loan when the home was purchased. The closing and escrow costs may not be rolled into the new mortgage, with the exception of the upfront guarantee fee. Refinance costs need to be paid at settlement.

3.) Additional borrowers may be added to the new guaranteed loan. Existing borrowers on the current mortgage note may be removed, however, at least one of the original borrowers must remain on the new refinance loan. The Standard streamline refinance would be used to remove a spouse from the title.

4.) The existing loan must have closed 12 months prior to the refinance application and must be current for the 180 day period prior to settlement.

5.) The borrower must meet the USDA credit and income requirements. The monthly mortgage payment, with real estate taxes, homeowners insurance and MIP may not exceed 29% and 41% for total monthly debt. In short, the applicant must re-qualify for the new mortgage.

There is no requirement to drop the payment by $50 and existing borrowers on the note may be removed if at least one of the original borrower(s) remains on the loan. The standard streamline loan is used to remove the ex-spouse.

3. USDA non-streamline refinance

The non-streamline loan requires an appraisal, and the maximum loan amount is 100% of the home’s current value, plus the new guarantee fee. The non-streamline option allows closing costs to be rolled into the new loan if the new appraised value is adequate, a feature that is not available on the standard streamline.

Borrowers must meet credit and income guidelines similar to those applied to USDA home purchase loans. Like the Standard refinance program, the borrower must re-qualify for this mortgage.

The $50 payment reduction requirement is not required and this refinance option can be used to remove a borrower from the note. The non-standard streamline refinance is identical to the Standard Streamline refinance program, however the non-streamline refinance option allows closing and escrow costs to be "rolled in", provided the new appraisal will sufficient to cover the loan payoff and additional closing costs.