One of the benefits of USDA Loans is the unique refinance option that is available. If you have a USDA loan and are looking to lower your interest rate there are three refinancing options:
USDA Streamlined-Assist Refinance, USDA Streamlined Refinance, or USDA Non-Streamlined Refinance.
USDA Streamlined-Assist Refinance
This is often seen as the most favorable refinance option due to the benefits discussed below. Although requirements are very similar to the Streamline Refinance, the following requirements will apply to the USDA Streamlined-Assist Refinance:
- A new appraisal is not required for existing guaranteed loan borrowers. A direct loan borrower will be required to obtain a new appraisal if they have received payment subsidy to determine the amount of subsidy recapture due. If subsidy recapture is due, the amount cannot be included in the newly refinanced loan. Subsidy recapture must be paid with other funds or subordinated to the new guaranteed loan. If an applicant elects to finance the subsidy recapture into the new refinance loan, refer to the non-streamlined refinance guidance.
- The maximum loan amount may include the principal and interest balance of the existing loan, and reasonable and customary closing costs, including any financed portion of the upfront guarantee fee.
- The borrower must receive a tangible benefit to refinance under this option. A tangible benefit is defined as a $50 or greater reduction in their principal, interest, and annual fee monthly payment compared to the existing principal, interest and annual fee monthly payment.
- The borrower is not required to meet the repayment ratio provisions as outlined in Chapter 11 of this Handbook.
- The existing loan must have closed 12 months prior to the Agency’s receipt of a Conditional Commitment request.
- The borrower is not required to meet all the credit requirements as outlined in Chapter 10 of this Handbook. Prior to the request for a Conditional Commitment, the existing mortgage payment history must not reflect a delinquency equal to or greater than 30 days within the previous 12 months. Lenders may verify mortgage payment history through a verification of mortgage obtained directly from the servicing lender or a credit report. When a credit report is ordered to determine timely mortgage payments, other credit accounts are not to be considered.
- Borrowers may be added; however, only deceased borrowers may be removed from the loan.
- Lenders are not required to complete the monthly repayment income calculation section on the Request for Single Family Housing Loan Guarantee.
- GUS is unavailable for this product and these loans must be manually underwritten.
USDA Streamlined Refinance
If you’ve received a USDA loan and feel that your rate is higher than today’s rates, refinancing your loan is an option. However, there are a few requirements to meet before you begin the refinancing process:
- A new appraisal is not required to refinance an existing guaranteed loan.
- However, a direct loan borrower will be required to obtain a new appraisal if they have received payment subsidy to determine the amount of subsidy recapture due. If subsidy recapture is due, the amount cannot be included in the new refinance loan. Subsidy recapture must be paid with other funds or subordinated to the new guaranteed loan.
- The maximum loan amount may include the principal and interest balance of the existing loan, and reasonable and customary closing costs, including any financed portion of the upfront guarantee fee.
- Additional borrowers may be added to the new guaranteed loan. Existing borrowers on the current mortgage note may be removed, when one of the original borrowers remains on the refinance loan.
- A good example of when this may be advantageous could be when there are two borrowers on a USDA loan, a divorce occurs, and then one of the borrowers will be removed with the original borrower remaining on the refinanced loan.
- The existing loan must have closed 12 months prior to the Agency’s receipt of a Conditional Commitment and have a mortgage payment history which must not reflect a delinquency equal to or greater than 30 days within the previous 180-day period.
- Lenders may request a debt ratio waiver when strong compensating factors are documented in accordance with Chapter 11 of this Handbook.
- GUS may be utilized to underwrite the streamlined refinance loan.
USDA Non-Streamlined Refinance
The USDA’s non-streamlined refinance option is again very similar to the USDA streamline with a key difference being that a new appraisal will be required. Borrowers considering this refinance option are not required to document the $50 payment reduction requirement as found under the Streamlined-Assist.
- A new appraisal is required.
- The maximum loan may include the principal and interest balance of the existing
loan, reasonable and customary closing costs up to the new appraised value. The
appraised value may only be exceeded by the amount of the financed upfront
guaranteed fee.
- Direct loan borrowers can refinance or defer the amount of subsidy recapture due.
Borrowers choosing to refinance subsidy recapture may be eligible for a discount
on the amount that is due. Borrowers that do not refinance subsidy recapture will
be required to enter into a second lien securing that amount and are not eligible
for a discount. (This does not apply to Guaranteed loans)
- Additional borrowers may be added to the new guaranteed loan. Existing
borrowers on the current mortgage note may be removed when one of the
original borrowers remains on the refinanced loan.
- The existing loan must have closed 12 months prior to the Agency’s receipt of
a Conditional Commitment request and have a mortgage payment history
which must not reflect a delinquency equal to or greater than 30 days within
the previous 180-day period.
- The borrower must meet credit requirements as outlined in Chapter 10 of this
Handbook.
- Lenders may request a debt ratio waiver when strong compensating factors in
accordance with Chapter 11 are documented.
- The Guaranteed Underwriting System (GUS) may be utilized to underwrite the
non-streamlined refinance.
