The United States Department of Agriculture offers home loans in order to allow low to middle-income Americans own homes while developing and revitalizing rural areas. These loans offer 0 percent down and lenient qualifying options in order to benefit both the agricultural areas of America and the Americans who might not otherwise qualify for a home loan.
But what if you’ve qualified for a USDA loan, bought the house, and need to refinance? When should you refinance? Is it possible to refinance a USDA loan?
When to Refinance
If you’ve qualified for a USDA loan and made a home purchase, and your current mortgage is in good standing, you may be eligible to refinance. You might be looking into refinancing if you want to keep the home that you’re in, but renegotiate the terms of the loan. Similarly, those looking to reduce their monthly payments, especially given the current job market and economic situation, might be considering refinancing. These are both appropriate times to refinance.
Again, this is when your loan is current and in good standing. Unlike other types of home loans, USDA loans do not allow a cash-out refinance option. This means that you can not refinance for more money than is currently owed on your mortgage.
Types of Refinancing
If you’ve decided to refinance your USDA loan, there are three financing options available to you. They are the streamlined refinance option, the streamlined assist refinance option, and the non-streamlined refinance option. The refinance option that’s best for your loan depends on a variety of factors.
USDA Streamlined Refinance
Borrowers with a USDA direct loan without a subsidy can benefit from streamlined finance because it doesn’t require a new appraisal. In order to qualify, borrowers must be current on their payments for at least the last 180 days, must receive a new interest rate at or below the current interest rate, must meet the USDA’s debt to income ratio requirements, and must undergo a new income and credit check. This option can also benefit loan holders who want to add or remove borrowers from the loan.
USDA Streamlined Assist Refinance
The Streamlined Assist Refinance option is best for borrowers who have little to no equity in their homes. There is no debt-to-income requirement or credit check required. In order to qualify for this option, the borrower must be current on their loan for the last twelve months, meet income guidelines for the area, be seeking at least a $50 net reduction in payment, and maintain all original borrowers on the new loan.
USDA Non-Streamlined Refinance
For those borrowers who don’t want to meet the $50 net reduction in the monthly payment, and who are willing to undergo a new appraisal, the Non-Streamlined Refinance option may be best. With this option, the homeowner is able to roll closing costs and/or a subsidy recapture into the new loan. You qualify for this option if you meet income and credit requirements, you’re current on your loan for at least the last 180 days, and your new interest rate will be at, or lower than, the current interest rate.
To explore these options in greater detail, or to talk to a mortgage professional about which is best for you, contact us today HERE.
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