Benefits of a USDA Refinance Program
There are many benefits of a USDA Refinance. If the homeowner is looking to lower their monthly payments, there are several options to have this done. If the credit of a homeowner improves and if there additional funds, a refinance can definitely lower the monthly mortgage payments directly by being offered a better interest rate. A lower interest rate is the easiest way to lower monthly payments for a homeowner, however there are other options. Another option is for a homeowner to use either the equity of the home, or provide additional outside money as a cash-in down payment towards the home. Be aware that a homeowner cannot use a USDA refinance option if they did not use the USDA loan program for the original home loan. This means that if the homeowner decides to use the FHA program, or Conventional Loan program, they cannot then refinance the home through the USDA loan program. This refinance option may or may not have out of pocket costs for the homeowner depending on the equity of the home. For the normal USDA refinance option, a new appraisal will be needed.
USDA Streamline Refinancing is an option for the homeowner whose equity in the home has not changed or is even at a negative amount. This option is to help those who have used a government backed program to still be able to lower their monthly payments provided they get a better interest rate as well as cover all closing costs. This refinance option will have out of pocket costs for the homeowner. However, there is no need for an additional appraisal since the value of the home has not changed or has decreased since the original loan.
Qualifications for USDA Refinance Program
In order to qualify for a USDA Refinance, the borrower must remain eligible. What this means is the borrower will still need to be within the household income requirements to be approved for USDA Refinancing. This is the case for both USDA Refinance options. The original mortgage must be a USDA loan in order for a USDA Refinance option to be available. The USDA refinance options do not allow any cash out options. The USDA Streamline Refinance Program does require that the borrower shows they have paid the mortgage on time for the last 12 months. For the regular USDA Refinance option, a missed payment or two may be acceptable by the lender as long as the borrower provides a very detailed letter of explanation. This letter of explanation must include that the late payments were out of the borrower’s control and that late payments would not happen again. Additionally, in order for the USDA Refinance program to be approved, the resulting mortgage payment must have at least a $50 dollar difference, including all fees and interest.
The Process
The regular USDA Refinance option is very similar to the actual USDA Loan process. A borrower looking to apply for the regular USDA Refinance can expect the process for this loan to have a bit less information needed than it’s loan program counterpart. For the original loan, a borrower had to find out if that property was eligible for the USDA loan program. Fortunately, if it is found out during the course of the refinancing process that the home is no longer in an eligible area, a refinance can still be approved. However, the borrower and household must still be income eligible.
For the regular USDA Refinance option, all household members that will be moving into the new home AND are over 18 must submit asset and income documentation along with the borrower. The lenders will still need to use household income to determine eligibility for a loan, and this is verified with the underwriter by submission of bank statements and pay stubs. This information is cross-referenced with a verification of employment that is filled out by the employer, most recent 2 years of W-2 forms or 1099 Forms and tax returns. Any large deposits that do not seem to be from the employer on file, or are not marked as payroll at all will need to be sourced with an accompanying letter of explanation, as this is required to insure there isn’t any hidden income. All of these items will be needed by the underwriter to clear asset and income conditions.
For the USDA Streamline Refinance option, income information is still needed to determine eligibility, but no other documents are needed. This means that a borrower applying for a USDA Streamline Refinance will not have to pay for another appraisal.
An appraisal report is a report that will only be needed for regular USDA Refinance options. As a reminder, it is purchased by the borrower to show the value of a property. An appraisal report is important because it gives the underwriter a sense of value that may then be compared to the purchase price, as well as an idea of the overall condition of the home. If the home is appraised higher than the current remaining loan amount, this means that the home has gained equity. Keep in mind that an appraisal is not a home inspection. An appraisal report can cost anywhere between $300 and $600 dollars. If there are repairs that are needed to meet USDA guidelines as requested by the appraiser, then those repairs will need to be completed promptly. Once these repairs are completed, a completion report is then paid for to have the appraiser confirm the home now meets guidelines.
USDA Refinance Program Requirements
Standard & Streamline – Recommended 620
Standard & Streamline – Low to Low Median
Standard & Streamline – Any location as long as property was in a rural area
Standard & Streamline – Equity can be negative or positive
Standard & Streamline – Not Available
Standard & Streamline – Fixed Rate Only
Standard & Streamline – USDA to USDA Only
Standard – Yes Streamline – Not Required