Understanding the USDA streamlined assist refinance
How to lower the interest rate and payments on your USDA loan
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A USDA mortgage is a loan backed by the U.S. Department of Agriculture. You can get these mortgage loans directly from the USDA or indirectly through approved lenders.
If you want to change the terms of your USDA mortgage after you get it (for example, if you want to lower your monthly payment and interest rate), you may consider a refinance. A USDA streamlined assist refinance is relatively easy to get approved for and can offer some relief if you’re struggling to make your monthly mortgage payments.
- The USDA streamlined assist refinance program allows people with existing USDA loans to lower their monthly payments quickly.
- In most cases, you won’t be required to get a new appraisal for this refinance, and your lender won’t evaluate your credit report or debt-to-income ratio.
- For you to qualify for this program, your mortgage payments must have been made as agreed for the past 12 months, and the refinance must reduce your monthly payment by at least $50.
What is a USDA streamlined assist refinance?
The USDA streamlined assist refinance program provides people with existing USDA loans and little-to-no equity with a way to receive more affordable payment terms. The primary goal of this program is to help people reduce their monthly payments of principal, interest, real estate taxes and homeowners insurance (PITI) by at least $50.
Since the aim is to reduce your payment, the interest rate you receive on your new loan via the USDA streamlined assist refinance can’t be higher than the rate on your existing loan. Plus, the repayment term can’t be any longer than 30 years.
To apply, the main thing you’ll need to show your lender is that you’ve repaid your loan as agreed for the past 12 months. There’s no credit review, and your lender won’t evaluate your debt-to-income (DTI) ratio or loan-to-value (LTV) ratio to qualify you.
If you want to do more than lower your payment (for example, remove a borrower because of a divorce), the USDA streamlined or nonstreamlined refinance may be more suitable than the streamlined assist. However, you can expect your lender to more closely scrutinize your loan request with these other refinance programs, which may require an updated appraisal and an evaluation of your ability to repay the loan.
USDA streamlined assist refinance guidelines
Since this program is designed for people who already have USDA financing, there’s minimal underwriting involved in the USDA streamlined assist refinance program, explains D. Shane Whitteker, the owner and chief broker of Principle Home Mortgage in State College, Pennsylvania. The main requirement is that you must get a net tangible benefit from the new loan, defined as a monthly payment reduction of at least $50.
As mentioned above, your credit report and DTI ratio don’t need to be reviewed, and your lender doesn’t need to calculate your home's LTV ratio, so an appraisal generally isn’t required.
However, you must meet the USDA’s annual income eligibility requirements for your area. Plus, your mortgage payments must have been made on time for the past 12 months.
Beyond this, there are very few program guidelines, according to Whitteker. The USDA streamlined assist refinance program is designed chiefly to help you quickly lower your monthly mortgage payment.
» MORE: How much house can I afford?
Pros and cons of a streamlined refinance
The main advantage of the USDA streamlined assist refinance program is that it’s easy to qualify for. However, it doesn’t apply if you have another loan type, like a Federal Housing Administration (FHA) loan. Plus, you can’t use it to remove existing borrowers from the loan unless they’re deceased.
Consider the below pros and cons before applying:
- A credit review isn’t required.
- DTI and LTV ratio calculations aren’t required.
- Your new monthly payment will be at least $50 less.
- It’s only available for existing USDA loans.
- You won’t qualify if you’ve had any payment defaults in the past 12 months.
- It can’t be used to remove living borrowers from your loan.
How to apply for a USDA streamlined assist refinance
You can apply for a USDA streamlined assist refinance loan by contacting a USDA-approved lender and submitting an application. Each lender will have its own application process, but you can expect to provide information such as the following:
- Existing borrower names, dates of birth and taxpayer identification numbers
- Your property’s address
- Annual household income amount
- Existing loan details (e.g., lender name, account number and loan amount)
Since an appraisal usually isn’t required for this type of refinance, the process will likely be much faster than a standard refinance (e.g., less than 30 days). However, the amount of time it takes will vary by lender.
How much does a USDA refinance cost?
The costs will vary depending on the type of refinance you’re getting (nonstreamlined, streamlined or streamlined assist). You may need to pay an upfront loan guarantee fee of no more than 3.5% of the loan amount. Plus, you may need to pay reasonable and customary closing costs and appraisal fees.
Can you get cash out with a streamline refinance?
No, you cannot get cash out with a USDA streamlined or streamlined assist refinance. You also can’t get cash out with a USDA nonstreamlined refinance. You can, however, get limited cash out with an FHA streamline refinance (up to $500).
Does a streamline refinance require an appraisal?
No, an appraisal generally isn’t required for the USDA streamlined refinance program or the USDA streamlined assist refinance program. The exception is for borrowers who received a loan directly from the USDA with a subsidy. In that case, appraisals are required.
Can you refinance out of a USDA loan into another loan?
Yes. It’s possible to refinance out of a USDA loan into another type of loan, assuming you meet the requirements of the loan you want to get. For example, military members may be able to refinance into a loan with the Department of Veterans Affairs (VA). Borrowers with equity of around 10% to 20% may be able to refinance into a conventional loan.
- Article sources
- ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- National Archives and Records Administration, "Code of Federal Regulations: Part 3555 - Guaranteed Rural Housing Program." Accessed June 25, 2023.
- National Archives and Records Administration, "Code of Federal Regulations: Part 3555.101 - Loan purposes." Accessed June 25, 2023.
- National Archives and Records Administration, "Code of Federal Regulations: Part 3555.107 - Application for and issuance of the loan guarantee." Accessed June 25, 2023.
- National Archives and Records Administration, "Code of Federal Regulations: Part 3555.251 - Servicing responsibility - Subpart F - Servicing Performing Loans." Accessed June 25, 2023.
- U.S. Department of Agriculture, “Active Single Family Housing Guaranteed Loan Program (SFHGLP) Lenders.” Accessed June 25, 2023.
- U.S. Department of Agriculture, "Refinance Options for Section 502 Direct and Guaranteed Loans.” Accessed June 25, 2023.
- U.S. Department of Agriculture, "Rural Home Loans (Direct Program)." Accessed June 25, 2023.
- U.S. Department of Agriculture, "Single Family Housing Programs." Accessed June 25, 2023.
- U.S. Department of Agriculture, “Single Family Housing Programs - Streamlined Assist Refinance Loans.” Accessed June 25, 2023.
- U.S. Department of Housing and Urban Development, "Streamline Your FHA Mortgage." Accessed June 25, 2023.
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