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If you have a USDA home loan and are looking to refinance, a USDA streamlined refinance loan may be a good choice for your needs. (Shutterstock)

Borrowers with USDA loans may be eligible to refinance with a USDA Streamlined Refinance Loan. If you can refinance a mortgage with an interest rate lower than your current interest rate, you can potentially lower your monthly payments, spend less on interest, and pay off your loan faster.

Keep reading to learn how the USDA is streamlining refinance loans, how to qualify, and how to apply for this type of refinance loan.

You can only get simplified USDA refinancing through the United States Department of Agriculture. But if you’re considering other types of mortgage refinance, visit Credible to compare mortgage refinance rates from various lenders, all in one place.

What is a USDA Streamlined Refinance Loan?

Mortgage refinancing involves replacing an existing mortgage with a new one. Ideally, your new loan will have a lower interest rate, which can help lower your monthly payments and save on interest over the life of your loan. In some cases, refinancing can even facilitate faster mortgage repayments.

USDA Streamlined Refinance Loans are a refinance option for borrowers who already have a USDA mortgage and are current on payments. Even if you have little or no equity in your home, you are still eligible for refinancing through this program, which is a unique advantage of this type of loan.

You won’t have to do a credit check to apply for a USDA Easy Aid Refinance Loan, making it a good choice if you don’t qualify for refinancing through a lender conventional, like a bank. Instead, you will need to provide proof of regular and one-time payments (12 months).

USDA Simplified Types of Refinance Loans

When it comes to USDA Refinance Loans, you have three options: Streamlined Aid Refinance Loans, Standard Streamlined Refinance Loans, and Non-Streamlined Refinance Loans. Each type is a little different, so you’ll want to compare them to find out which option is right for you.

Simplified refinance loan

  • Eligible loan costs/maximum loan amount — You can refinance the balance of principal and interest, closing costs and initial guarantee fees
  • Evaluation – Required only if you are a direct loan borrower who received a payment subsidy (a subsidy is a form of payment assistance available to eligible low-income homeowners who obtain a USDA direct loan)
  • Add Borrowers — Yes
  • Delete Borrowers — Only deceased borrowers can be removed from the loan
  • Credit history requirements — Your loan must be repaid as agreed 12 months before your application

Standard Simplified Refinance Loan

  • Eligible loan costs/maximum loan amount — You can refinance the balance of principal and interest, closing costs and initial guarantee fees
  • Evaluation – Required only if you are a direct loan borrower who received a payment subsidy
  • Add Borrowers — Yes
  • Delete Borrowers — Yes (an original borrower must remain on the loan)
  • Credit history requirements — Full credit review; your loan must be repaid as agreed six months before you apply and you must meet Chapter 10 requirements

Non-Streamlined Refinance Loan

  • Eligible loan costs/maximum loan amount — You can refinance the balance of principal and interest, closing costs, initial guarantee costs and the recovery of the grant due (up to the new appraised value), if applicable. Recoupment of the grant occurs when you sell, transfer or no longer occupy the property – you must repay all or part of the grant at this point. The amount you will repay is calculated when the loan is repaid.
  • Evaluation – Mandatory
  • Add Borrowers — Yes
  • Delete Borrowers — Yes (an original borrower must remain on the loan)
  • Credit history requirements — Full credit review; your loan must be repaid as agreed six months before you apply and you must meet Chapter 10 requirements

Eligibility Requirements for USDA Streamlined Refinance

Like any loan product, USDA Simplified Refinance Loans have certain eligibility requirements that you must meet, including:

  • Type of loan — Your current loan must be a direct or secured 502 loan.
  • Loan Closing Date — The loan must have closed at least 12 months before requesting a refinance.
  • Occupancy — The property must be owner occupied and the household must meet the applicable adjusted annual household limit.
  • Location – Even if the house is no longer located in an eligible rural area, you may still be eligible for refinancing.

If you’re considering a conventional refinance, Credible lets you compare mortgage refinance rates from multiple lenders in minutes.

Advantages and Disadvantages of a Simplified USDA Refinance

USDA streamline refinance loans have advantages and disadvantages. Let’s take a closer look at the pros and cons you should consider before applying for this type of refinance loan:

Benefits

  • Lower interest rates — With a USDA streamlined refinance loan, you get a lower interest rate, which can potentially save you thousands of dollars over the life of your loan.
  • Simplified application process — One of the main benefits of a USDA streamlined refinance loan is that you usually don’t need to undergo a property inspection or home appraisal, which can make the process easier.
  • Relaxed requirements — A USDA Simplified Refinance does not require proof of your credit score or debt-to-equity ratio.
  • No Equity Required — You do not need to have equity in your home to qualify. Even if you’re under water on your mortgage, you may still qualify for a refinance.
  • Incorporate the costs into your new loan — You can carry over your escrow fees and closing costs into your new loan balance, which means you can refinance without paying upfront.

The inconvenients

  • Inflexible loan terms — USDA streamlines refinance loan terms to be set for 30 years.
  • No secondary funding — You cannot include forms of secondary financing, such as USDA leveraged loans, in the new loan.
  • No cash-out refinancing option — You generally cannot refinance for cash, except for reimbursement of qualifying closing costs paid from your personal funds or from excess in your escrow account.
  • Some fees cannot be included in the loan amount — This includes late fees or unpaid fees.
  • Comes with a fee — This loan comes with initial guarantee fees and annual fees.

How to Apply for USDA Streamlined Refinance

If you want to apply for a streamlined USDA refinance loan, you will generally follow these steps:

  1. Contact a USDA approved lender. If you have questions about USDA Streamlined Refinance Loans that you want answered before meeting with an approved lender, you can connect with a USDA Rural Development Guaranteed Loan Coordinator in your state. They will provide you with more information about this option.
  2. Provide all necessary information. Although the exact application process varies by lender, you can expect a fairly smooth process – most of the information you need to provide is already recorded in your original USDA mortgage. You’ll provide the lender with all the personal and financial information they need, but you’ll skip the home appraisal and inspection, saving you a lot of time and stress.
  3. Meet the qualifications. During the application process, you will need to meet all loan conditions, such as having a USDA mortgage, not being behind on your loan, not withdrawing money during the refinance process, and showing proof of 12 previous payments that were made on time. You must also prove that a simplified assistance refinance will reduce your monthly payment.

Is USDA Streamlined Refinancing Right For You?

If you’re considering refinancing, you may be wondering if a USDA streamlined refinance loan is right for you.

If you already have a USDA mortgage and your payments are up to date, a USDA streamlined refinance loan may meet your needs. If you have little or no equity in your home, you may find it difficult to refinance outside of the USDA’s Streamlined Refinance Program. This option may be right for you if you are looking for a more convenient application process.

Keep in mind that just because you have a USDA home loan doesn’t mean you should refinance through a USDA streamlined refinance loan; you can consider other options and research the best rates and terms from mortgage refinance companies and banks.

If you don’t qualify for a USDA streamlined refinance, you can visit Credible to compare mortgage refinance rates from various lenders without affecting your credit.