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How a USDA Streamline Refinance Works

How a USDA Streamline Refinance Works

  • Important USDA Streamline Refinance Considerations
  • Pros Cons
    • Save time and money when you refinance an existing USDA home loan
    • Fewer borrower qualification requirements -- no appraisal report, credit report or borrower debt-to-income ratios
    • Lower interest rate
    • No loan-to-value ratio limit so underwater borrowers are eligible for program
    • Borrowers are required to pay up-front and ongoing USDA mortgage insurance fees
    • Limited mortgage program options (fixed rate mortgage only)
    • Property and loan eligibility requirements
    • No cash-out refinancings
  • USDA Streamline Refinance Program Overview
  • The USDA Streamline Refinance Program enables borrowers to refinance an existing USDA home loan with significantly fewer borrower qualification requirements than a standard mortgage refinance. Officially called the USDA Streamlined-Assist Refinance, the program is designed to make it easier for borrowers to refinance into a more affordable mortgage with a lower monthly payment.

    The main benefits of a USDA Streamline Refinance are that it does not require borrowers to obtain a property appraisal report, provide a credit report or meet debt-to-income ratio requirements. Because the program does not require an appraisal, there is no loan-to-value (LTV) ratio limit which means that borrowers who are underwater on their mortgage are eligible for the program. If you are underwater on your home it is usually impossible to refinance your mortgage with regular refinance programs.

    By simplifying the loan approval process, the USDA Streamline Refinance Program enables more borrowers to refinance into  affordable mortgages, which saves them money and time. For example, eliminating the appraisal and credit report fees saves the borrower hundreds of dollars in closing costs.  Additionally, USDA Streamline Refinances do not require borrowers to obtain a property inspection report, which reduces costs further.  The more time-efficient application process also means applicants close their loan faster.  A typical streamline USDA Streamline Refinance takes less than a month to close as compared to more than a month or potentially longer for a standard mortgage.

    Refinancing a USDA home loan with no appraisal report, credit score or maximum LTV ratio may sound impossible.  There are several USDA Streamline Refinance requirements, however, that you must meet to qualify for the program.  Most important, you must be current on your mortgage with on time payments for the past year.  This is because if you are current on your existing loan and have made your payments on time, you should be able to afford your new lower mortgage payment after you refinance.

  • How a USDA Streamline Refinance Works
  • You apply for a USDA Streamline Refinance with approved private sector lenders such as banks, mortgage banks and mortgage brokers. The USDA does not promote any particular lender but offers a list of approved lenders as well as a list of Guaranteed Loan Program local contacts on the USDA web site.  Borrowers seeking to use the program to refinance a direct loan should contact the USDA office in their state.

    We recommend that you shop multiple lenders to find the best loan terms when you refinance your USDA home loan.   Contact multiple lenders in the table to understand if they offer the USDA Streamline Refinance program and to compare mortgage terms.  Comparing lenders and loan proposals is the best way to find the mortgage and the program that are right for you.

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    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
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    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
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    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
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    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
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    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
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    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
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    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
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    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
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    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
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    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

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  • USDA Streamline Refinance Eligibility
  • We review the key program eligibility guidelines below. Review the guidelines to determine if you are eligible for a USDA Streamline Refinance.

    Loan Status

    Borrowers must be current on their USDA home loan and not delinquent.

    Payment History

    Applicants must have paid their mortgage on time for twelve consecutive months immediately prior to applying for a USDA Streamline Refinance.

    Property Eligibility

    The mortgage being refinanced must be an existing guaranteed or direct USDA home loan on an owner-occupied, single-family primary residence. Properties eligible for the program are located in designated rural areas and small communities.

    Mortgage Rate

    The mortgage rate on your new loan must be less than or equal to the rate on your existing loan. As an added borrower benefit, USDA mortgage rates are typically .125% - .500% lower than the rates for most conventional mortgage programs.

    Loan-to-Value (LTV) Ratio

    Because the USDA Streamline Refinance Program does not require an appraisal report, there is no maximum loan-to-value (LTV) ratio. This is especially helpful for underwater borrowers as it can be extremely challenging to refinance an underwater mortgage.  For example, if your property value is $100,000 and you loan amount is $110,000, your LTV ratio is 110%.  As long as you can afford your new monthly payment, you can still use a USDA Streamline Refinance even though your LTV ratio is greater than thee 100% limit for a standard USDA home loan. 

    Please note that guaranteed USDA home loans do not require an appraisal report while subsidized direct USDA loans do require an appraisal.

    Mortgage Program

    The program only permits 30 year fixed rate mortgages. Adjustable rate mortgages (ARMs) and interest only mortgages are not eligible for the program.

    Type of Refinance

    The USDA Streamline Refinance Program does not permit cash-out refinances. Only rate and term refinances are allowed.

    USDA Mortgage Insurance

    Like with the standard USDA Home Loan Program, borrowers are required to pay an up-front and ongoing USDA mortgage insurance premium, also called a guarantee fee. Similar to private mortgage insurance (PMI) for conventional mortgages and the mortgage insurance premium (MIP) for FHA loans, the ongoing USDA mortgage insurance fee is an additional cost to borrowers on top of their monthly mortgage payment. Mortgage insurance protects lenders in the event that borrowers default on their loan. As of October 1, 2016, the up-front USDA insurance fee is 1.0% of the loan amount and the ongoing insurance fee is 0.35% of the loan.

    Prepayment Penalty

    There is no prepayment penalty on USDA home loans.

    Flood Insurance

    Borrowers are required to obtain flood insurance if the property being financed is located in federally-designated flood zone.

    Our personalized mortgage quote feature enables your to review loan proposals from leading lenders in your area.  Our quote form is free, no obligation, easy-to-use and does not impact your credit. Shopping multiple lenders is the best way to save money when you refinance your USDA home loan.

  • USDA Streamline Refinance Requirements
  • As outlined below, USDA Streamline Refinance requirements are much more flexible than the requirements for standard refinance programs.  The reduced and relaxed requirements mean the program is accessible to more borrowers of all income levels. 

    Borrower Credit Score

    USDA Streamline Refinances do not require a credit score which is a significant advantage for applicants who have experienced a drop in their score. Usually applicants with lower credit scores pay a higher mortgage rate but this does not apply to the program.

    Borrower Debt-to-Income Ratio

    The program does not apply a maximum debt-to-income ratio which helps applicants who have experienced a decrease in their monthly gross income or an increase in monthly debt expense. Instead of limiting how much of your income you can spend on your mortgage payment, lenders focus on your past payment history to determine if you qualify for the mortgage.  Not applying a debt-to-income ratio means more borrowers can qualify for a Streamline USDA Refinance.

    Ability to Repay the Loan

    Although the USDA Streamline Program does not use a credit report or apply a maximum debt-to-income ratio, lenders are required to verify that borrowers have the financial ability to repay the loan. This is usually accomplished by reviewing the borrower’s on time payment history and applying guidelines similar to the Qualified Mortgage (QM) criteria to ensure that borrowers can afford their monthly payment and repay their mortgage.

    Income Limits

    Because the program does not use debt-to-income ratios, borrower income limits also do not apply. This feature may be helpful for applicants whose income has increased since they obtained their original mortgage as standard USDA home loan programs apply borrower income limits.

    Use the FREEandCLEAR Lender Directory to find lenders that offer the USDA Streamline Refinance program and other refinance assistance programs


  • Great Mortgage IdeaRelated FREEandCLEAR Resources

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    USDA Streamline Refinance Program:

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry


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