A USDA loan is a type of home loan guaranteed by the United States Department of Agriculture. One of the significant benefits of this loan is that you are not required to pay a down payment, which could be hard to pay for many people.
Moreover, the interest rates are also not very high, and there are no hard and fast rules and regulations. These loans have unique eligibility criteria that you won’t find in other types of mortgages.
Like every other home loan, you can refinance your USDA loan, too. There are plenty of options available for refinancing, and you can choose the one that is most suitable for you and for which you fulfill all the requirements. There are a lot of benefits to refinancing a USDA loan.
Now, we will discuss the available refinancing options for a USDA loan.
USDA Loan Refinancing | Available Options
Refinancing your mortgage could be a good option if you’re looking to improve your finances. This can lower your interest rate, which can reduce your borrowing costs. It can also reduce your monthly payment and give you more flexibility in how you spend your money.
Refinancing can also provide you with access to your home’s equity. For example, you may be able to take cash out of your mortgage to pay for home improvements. Or, you could refinance your mortgage to a better-suited loan term.
1) Streamlined Refinance
The U.S. Department of Agriculture's streamlined refinance program allows you to refinance your current loan with closing costs rolled in. This program was introduced to the public in 2012. You can also add or remove borrowers with a streamlined refinancing facility. This refinancing option does not always require a new appraisal fee. The fee is only needed if you have taken a direct USDA loan and have received a payment Subsidy. Some guidelines regarding this refinancing facility include:
- Borrower must meet the required credit score requirement
- The home for which you have taken the loan should be your primary residence
- The borrower’s income should fall within the criterion of income needed
2) Streamlined-Assist Refinance
This is usually the most demanding refinancing option with a low interest rate. This refinancing facility requires you to pay an appraisal fee if you have availed of a direct United States Department of Agriculture loan or are taking advantage of a payment discount. If you want to apply for this refinancing, you need to be up-to-date on your current mortgage for a minimum of the last 12 months. That's why it is hard to qualify for this refinance option.
This program provides the current direct USDA home loan borrowers with less or no equity opportunity. In this way, they can refinance the program according to more affordable payment terms. You can also add borrowers or remove the deceased ones.
3) Non-Streamlined Refinance
In the case of a non-streamlined refinance, a new appraisal fee will always be required. The advantage of a new valuation is that it provides you with additional equity and the ability to refinance the loan balance, the closing costs, and the guarantee fee. T
Customers must maintain a consecutive timely payment history for the last year to avail of this refinancing facility. You can also add or remove new borrowers in this option. Onething to remember is that the borrower's monthly expenses should not exceed the income; otherwise, they would be disqualified.
How To Apply For A USDA Loan Refinancing?
You can apply for a refinance loan with a USDA-approved mortgage lender and complete the loan application process with the lender. If you select a simplified refinance, the documentation requirements may be low. Otherwise, you may be required to provide income and employment information to get your loan approved.
General Requirements
- Firstly, the property you buy must be in a USDA-designated rural area. Fortunately, the majority of the U.S. is eligible for USDA loans.
- Secondly, you must be a United States citizen.
- Thirdly, you should have an excellent monthly income that falls within the given income criteria by the company.
- And lastly, the property you are applying for should be your primary residence.
- To be eligible for refinancing, your current USDA loan should be at least a year old.
USDA Loan Refinance Fee
Like any other loan type, USDA loan refinancing requires some initial fees. To qualify for it, you have to pay a 1 per cent guarantee fee or upfront fee and an annual 0.35 per cent fee. The borrowers will also be asked to pay other closing fees. You also have the option to cover these fees in your new loan.
Pros & Cons of USDA Loan Refinancing
Pros:
- It has lower interest rates as compared to conventional mortgages
- This does not require a high credit score, which is a plus point
- No problem if you have a high DTI (debt to income) ratio
- You do not always need to pay a new appraisal fee
Cons:
- USDA refinancing is a 30-year loan which is fixed. You can't shorten your loan period.
- In order to qualify for refinancing, you ought to have a minimum credit score of 580 or more.
- You will have to pay the guarantee fee again while refinancing your USDA loan.
- You are not eligible for refinancing if your monthly income exceeds the defined limits.
Conclusion
In this article, we discussed refinancing a USDA loan, its benefits, and available options. Refinancing your loan is always a good choice as it helps to improve your financial status. You can choose a better option according to your current needs and situation. The USDA loan refinancing facility is available to all the USDA loan borrowers in the United States who are a permanent residents there. So, if you are one of them, you must avail yourself of this golden opportunity and refinance your loan.
