3 Ways a USDA Refinance Helps Homeowners Lower a Mortgage Payment

USDA Rural Development loans have provided no money down home loans to low to middle income buyers for years. What many do not realize is that there is an additional home loan product called a USDA refinance. Homeowners with a USDA mortgage have 3 USDA refinance options to make their home even more affordable. Just like a USDA purchase loan, these are all 30 year fixed rate home loans. So, these USDA refinancing options include…

1. Non Streamline Refinance
2. Streamlined Refinance
3. Streamlined Assist Refinance

Not only do these USDA refinancing loans potentially provide homeowners a lower rate, they also have the cheapest monthly mortgage insurance option and lowest financed funding fee of any government loan. Let’s discuss these 3 USDA refinances and see which works for you.

USDA Streamline Refinance Details

Over the years, USDA has offered a pilot program and switched up their requirements. First of all, there is the USDA streamlined refinance. Below are highlights of the streamlined USDA refinance.

• No appraisal required*
• Must have closed 12 months prior to the refinance request
• No mortgage late payments in last 180 days
• Maximum debt to income ratio: 29% housing ratio and 41% total ratio (possible exception)
• Loan amount may not exceed original loan at time of purchase
• May finance the following
  • Principal and interest balance
  • Reasonable fee
  • USDA guarantee fee may be financed on top of the loan
• Must have a net tangible benefit to the borrower
• May add a new borrower. Original borrower may not be removed

*An appraisal is required if refinancing a subsidized USDA direct loan that has a recapture balance.

USDA Non Streamlined Refinance

Unlike the other two USDA refinance options, this option is not streamlined and it does require an appraisal. The main advantages of this USDA option include being able to include closing costs as well as being able to remove a borrower. Highlights of the USDA non streamlined refinance are as follows:

• Loan amount may not exceed new appraised value
• Although USDA guarantee fee may be financed on top of appraised value
• May finance the following in the new loan:
  • Principal & interest balance due
  • Reasonable and customary closing costs
  • Escrow setup
• Refinancing a USDA direct loan with recapture may…
  • Refinance to pay off recapture
  • Defer the recapture that is due
    • Choosing to defer leaves a second lien on the property
• Additional borrowers may be added
• Existing borrowers may be removed, but one original borrower must remain
• Original loan must be over 12 months old
• Mortgage must be on time for last 180 days
• Maximum USDA debt to income ratio is 29% housing ratio & 41% total ratio – possible exception available

How To Start A Refinance 

Streamlined Assist USDA Refinance

Most of the time, this is the best USDA refinance option for a homeowner. Primary because there is no appraisal, credit report, debt ratio, and the closing costs may be financed. How about that? Basically, it makes the program very similar to the very popular VA IRRRL streamlined refinance. Here are the highlights of this wonderful USDA loan…

• No appraisal required (unless refinancing a USDA direct loan)
  • Subsidy recapture funds may not be included in the new loan
• New loan amount may include…
  • Principal and interest balance
  • Eligible closing costs
  • Escrow setup
  • USDA guarantee fee
• New USDA refinance must provide a minimum $50 per month savings
• Existing loan must be over 12 months old
• Credit report not required
• No 30 day late payments on the mortgage in the last 12 months
• No debt to income ratio requirement
• Borrowers may NOT be removed from the existing USDA loan

USDA Refinance Loan Comparison

So, if you read all 3 of these refinance options, you probably figured out that the Streamlined Assist Refinance is preferred. Thus, the loan officer will work to use this loan first as it is easier to qualify. Plus, it does not require equity, does not require a certain debt ratio, and may include the closing costs.

Now, interest rates have been low for a while. That means a streamlined refinance may not be available for many. But rates have had some spikes where mortgage rates are near or above 5%. Therefore when rates have dipped like they have, it is possible to save by a refinance. It doesn’t hurt to ask!

Lower USDA Guarantee Fee Makes for a Cheaper USDA Refinance

Prior to October 1, 2016, it was difficult for homeowners with a USDA loan to refinance because of duplicating higher costs. Depending on the purchase date, the homeowner originally paid a 2% – 3.5% fee to purchase the home. Then, a USDA refinance required an additional financed 2.75% fee. It was hard for borrowers to benefit. But then USDA lowered the USDA guarantee or funding fee to only 1% and the annual fee to .35%. Now, a USDA refinance is much more possible!

So why did the 2016-2017 USDA Funding Fee and Annual Fee decrease? Because foreclosure and delinquency rates have fallen to historic lows. Thus, USDA could afford this reduction. Less risk means fewer costs. USDA Rural Housing Service Administrator Tony Hernandez said, “When our borrowers succeed, the program succeeds. Excellent overall performance in our single-family housing guaranteed loan program means we can charge less for the life-changing opportunity to own a home.”

As we have shown in this article, grab the following items and call a USDA loan officer today.

How to Get an Accurate USDA Refinance Quote

OVM Financial understands that providing a detailed quote up-front is important. More details means a better, more informed decision. When you call, have the following handy. You will get a more accurate quote.

• Most recent mortgage statement
• Current insurance declarations pages for all insurances (flood, homeowners, wind/hail). Looking for the annual premium and renewal date
• Most recent property county tax bill (and city if applicable)
• HUD or Closing Disclosure from most recent closing

USDA Interest Rates are at Historic Lows

Now you know more about the USDA refinance loans available. Also, you may know that mortgage rates have been hovering around all-time lows. Since rates had ups and downs over the years, a USDA refinance may benefit a homeowner during these rate dips. To sum it up, USDA basically has the mortgage trifecta going on:

• Low-Interest Rates
• Reduced Fees
• Simplified Guidelines and Process

Contact a highly reviewed OVM Financial loan officer to learn more