What Is a USDA Streamline Refinance?

A USDA streamlined refinance allows borrowers to refinance their USDA loans. 

If you're looking for low interest rates, better terms, or other options that don't require a lot of equity in the home, a USDA Streamline Refinance can be a good option. However, a USDA Streamline Refinance will only work if you have a USDA-eligible property and can meet other borrowing criteria. Below, we'll discuss the benefits of this refinance option and whether you should consider it. 

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What Is a USDA Streamline Refinance?

A USDA Streamline Refinance is a way to refinance a USDA loan. You can find many USDA-approved lenders and compare offers for the best possible terms. Features of a USDA Streamline Refinance include:

• Credit qualifications: While the USDA doesn’t set a minimum credit score, most lenders prefer a credit score of 640 or higher. You might not even be required to show current credit in some cases, but those policies can vary by individual lender. 
• Low home equity: You can use a USDA Streamline Refinance for a rate-and-term transaction up to the full value of your property. In other words, you can access equity in your home and take advantage of favorable market conditions for lower interest rates or to get longer loan terms. 
• No inspections: You’re already living in the home, so you won’t have to pay for a home inspection, speeding up closing and reducing costs. 
• No appraisal: You’re refinancing an existing USDA loan, which means you won't be required to get a new home appraisal in most cases. However, if you received a subsidy for getting a direct loan from the USDA, you may be required to get an appraisal. 

How Does a USDA Streamline Refinance Work?

With a USDA Streamline Refinance, you'll apply directly with a USDA-approved lender. You can choose from both a USDA Streamline-Assist Refinance and a Standard Streamline Refinance. One of the main reasons to apply for a USDA refinance is to save on interest rates.

According to the USDA, the low-income and very low-income borrower interest rate for Single Family Housing Direct mortgages was 4.875% as of July 1, 2024. When modified by payment assistance, that interest rate can be as low as 1%. The USDA notes that fixed interest rates are based on current market rates at loan approval or closing, whichever is lower. In addition, you can get a repayment period of up to 33 years, allowing you to stretch out mortgage payments over a longer term. 

You can compare your options through the USDA’s list of approved mortgage lenders to find the best interest rate and loan term for your financial situation and borrowing needs.

Types of USDA Streamline Refinance

You can choose between two types of USDA Streamline Refinances. Here is an overview of key differences. 

USDA Streamline-Assist Refinance 

A USDA Streamline-Assist Refinance is the more common option for a USDA loan refinance. The main requirements of a USDA Streamline-Assist Refinance include:

• Residence: The home has to be your primary residence.
• Loan type: You must have a USDA Direct Home Loan or a USDA Guaranteed Home Loan.
• Loan age: Your existing home loan must be 12 months old. After 12 months, you could receive conditional approval on your new loan.
• Payment history: To qualify, you must have made 12 consecutive payments on your existing USDA loan.
• New monthly payments: Your total payment must be at least $50 lower after the refinance.
• Maintaining borrowers: All original borrowers must remain on the loan after refinancing. For example, if you and your spouse share the existing mortgage, you must apply together for the refinance. You can also add new borrowers to the loan.

There are also a few missing requirements. Most notably, a credit check and income verification aren’t usually required. No specific debt-to-income ratio is used as part of the Streamline-Assist option, making it easier to qualify. There's also no appraisal or inspection requirement; extra expenses like escrow fees and other closing costs can be included in the loan.

USDA Standard Streamline Refinance

A USDA Standard Streamline Refinance has more requirements than a Streamline-Assist Refinance, making it a less popular option. However, if you can qualify, it is a good option. The first three requirements are the same as a streamline-assist refinance:

• Residence: The home has to be your primary residence.
• Loan type: Your mortgage has to be directly from or guaranteed by the USDA.
• Loan age: Your current loan must be at least a year old before you can get conditional approval.

In addition, you must meet the following requirements:

• Income and DTI: You must prove your income and have a USDA-qualifying debt-to-income ratio (DTI) of 41% or less.
• Credit score: Lenders will check your credit score and apply standard credit guidelines.
• On-time payments: You must have made on-time payments for the last six months.

While you'll need to meet stricter income, credit score, and DTI requirements, you'll still benefit from no home appraisal or inspection requirements. Additionally, closing costs can still be built into the loan.

Pros and Cons of a USDA Streamline Refinance

Depending on your situation, a USDA streamline refinance has pros and cons. Here's what you'll want to consider. 

Pros

• Low interest rates: According to the USDA, low-income borrowers qualify for interest rates significantly lower than the current average.
• Flexible qualification: If you opt for a USDA Streamline-Assist Refinance, you can qualify without showing your credit score, income, or current DTI. 
• Lower cost: You won't need an inspection or appraisal, and you can roll other closing costs into the loan so that it won't lead to additional expenses at closing. 

Cons

• Costs: Closing costs typically cost 2% to 6% of loan value. Even if this is rolled into the loan, it will cut into your home equity. 
• Reduces equity: If you refinance with a longer loan term, you'll take longer to pay off the loan and own the home outright. Likewise, it could reduce the equity you currently have in the home. 
• Time: Even with faster closing, a USDA Streamline Refinance takes time to close, which can take your time from other activities with income-earning potential or leisure time with family or friends. Consider whether a refinance makes sense after accounting for all closing costs. 

Other Options for Refinancing a USDA Loan

If you're sure you want to refinance, you can also consider other refinance options. 

Nonstreamlined Refinance

An alternative to a USDA Streamline Refinance, a USDA nonstreamlined refinance, requires an appraisal. There may be limits on the maximum you can borrow based on the property's current appraised value. In some cases, this can work in your favor as a new appraisal could give you added equity in the home and flexibility to refinance your loan balance.

Conventional Loan Refinance

A conventional loan refinance can replace your existing USDA mortgage with a new conventional mortgage. This is an option if you no longer meet USDA criteria or need additional flexibility that a conventional loan could offer. You can find the best conventional mortgage lenders, compare refinance options, or consider a cash-out refinance. 

Compare the Best Mortgage Refinance Lenders From Benzinga’s Providers

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Should You Refinance?

The reasons to refinance usually come from lower monthly payments or total costs. You'll need a lower interest rate, longer term, or both. If you can qualify for a lower interest rate in case of financial hardship or because of a better credit score, increase in home equity, or other positive factors, a refinance can be worth it.

Carefully compare lenders' total costs, annual percentage rate (APR), and any additional fees to find the more favorable option for your situation. You can check out the best lenders or lenders for first-time homebuyers. You can also find interest-only mortgage lenders. 

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