USDA Streamline Refinance: Everything You Need To Know

*As of July 6, 2020, Rocket Mortgage® is no longer accepting USDA loan applications.

If you have a U. S. Department of Agriculture (USDA) loan and decide to refinance your home loan, a USDA Streamline Refinance could be a good option. A USDA Streamline gives eligible borrowers an opportunity to take advantage of low interest rates and change to more favorable loan terms, even if the homeowner hasn’t built a lot of equity in their home.

We want you to understand the different types of mortgage refinances available, so that if the time comes for you to refinance, you’ll be aware of your options. Let’s take a look at everything you should know about USDA Streamline Refinances.

If you have a USDA loan and are looking to refinance your home, a USDA Streamline offers several benefits. They include the following:

• Little to no home equity needed: You can use a USDA Streamline Refinance to do a rate-and-term transaction up to the full value of your property. This means you can use it to take advantage of market conditions if you want to lower your interest rate or change your loan term, even if you haven’t built much equity in your home.
• No appraisal required: Because you’re going from one USDA loan to another, a home appraisal isn’t required in most cases. The only exception is if you received a subsidy as part of getting a direct loan from the USDA before your current refinance.
• No inspection necessary: Because you’re already living in the home, you won’t have to pay for a home inspection, either.
• Credit flexibility may be available: The USDA doesn’t set a minimum qualifying credit score, but as a practical matter, it’s harder to get approved with a FICO® Score below a median of 640.

That said, depending on the type of Streamline you’re applying for, a credit check may not be required. It's important to note that USDA policy may also differ from that of an individual lender, so be sure to compare mortgage providers.

One feature distinguishing a USDA Streamline from other types of mortgage refinances is that it’s available in two options: a USDA Streamline-Assist Refinance and a USDA Standard Streamline Refinance. Let’s run through the eligibility requirements for a USDA Streamline-Assist Refinance before taking a look at the similarities and differences of a USDA Standard Streamline.

USDA Streamline-Assist Refinance

For reasons we’ll get into below, a USDA Streamline-Assist Refinance is the more popular of the two streamline refinancing options for refinancing USDA loans. Here are the main requirements of a USDA Streamline-Assist Refinance:

• The home has to be your primary residence – where you live most of the year.
• Your current mortgage has to be a USDA Direct Home Loan or a USDA Guaranteed Home Loan.
• Your existing home loan must be at least 12 months old before you can receive conditional approval on your new loan.
• You’ll need to have made at least 12 consecutive payments on your existing USDA loan.
• Your total monthly mortgage payment must be a minimum of $50 lower after the refinance.
• All original borrowers must remain on the loan after refinancing. However, new borrowers can be added to the loan.

A credit check and income verification aren’t required, and no special ratios are calculated as part of the Streamline-Assist option, so it can be easier for borrowers to qualify. Additionally, no appraisal or inspection is necessary if you haven’t received a subsidy. Finally, extra expenses like escrow fees and other closing costs can be included in the loan to create a no-closing cost refinance.

USDA Standard Streamline Refinance

A USDA Standard Streamline Refinance is a bit harder to qualify for than a Streamline-Assist Refinance, but it still may be a good option for eligible borrowers. Here are the requirements:

• The home has to be your primary residence.
• Your existing home loan has to be directly from or guaranteed by the USDA.
• Your existing home loan must be at least a year old before you can get a conditional approval on your Streamline.
• You must prove your income and have a USDA-qualifying debt-to-income ratio (DTI).
• Standard credit guidelines apply.
• You’ll need to have made on-time payments for the last 6 months.

Other than stricter credit and income guidelines, many of the requirements for a Streamline-Assist are the same with a USDA Standard Streamline Refinance. For example, no home appraisal or inspection is required, and closing costs can still be built into the loan.

According to the USDA, the low-income and very low-income borrower interest rate for Single Family Housing Direct mortgages was 4.125% as of May 1, 2023. When modified by payment assistance, that interest rate can be as low as 1%.

Be sure to compare your options through the USDA’s list of approved mortgage lenders to ensure you’re getting the best interest rate and loan term for your situation.

Several commonly asked questions are associated with the USDA Streamline Refinance. Let’s take a look at a few – along with their answers.

What are the USDA Streamline Refinance requirements?

The guidelines for a USDA Streamline Refinance state that you must currently have a USDA home loan and the borrower must have made on-time payments for the past 12 months. The homeowner will also have to reduce their payment as well as interest, principal and the guarantee fee. The property you’re refinancing must be for your primary residence, and you can’t finance other properties.

Can I take cash out with a USDA Streamline Refinance?

USDA streamline refinance loans do not allow homeowners to take cash out of their home by borrowing against their existing home equity. If you’re interested in a cash-out refinance, you may want to consider other loan options.

Can I use a USDA refinance to transfer ownership of a mortgage to someone else?

If you use a USDA refinance, all original borrowers must remain on the mortgage. However, new borrowers may be added to the loan.

What are the downsides of a USDA Streamline Refinance?

The main downside to a USDA Streamline are the guarantee fees. These are upfront and annual, and they function much like mortgage insurance.

This contrasts with a conventional loan where you don’t have to pay for mortgage insurance if you have at least 20% equity in your home. For this reason, a conventional loan may be a more attractive option, especially if you find yourself building equity over time.

Which states offer the USDA Streamline Refinance program?

The USDA Streamline Refinance program started in 2012 as a pilot in several states. However, it quickly proved to be a success and created outcomes correlating with homeownership stability. As such, the program has expanded nationwide.

You can see whether your property is in an eligible area by looking at a USDA eligibility map or visiting the USDA website.

Can I refinance a USDA loan if my home isn’t in an eligible rural area?

If you purchased your home with a USDA loan and the area where your home is located has changed from rural to non-rural status, you can still refinance with a USDA Streamline Refinance, as long as you work with a USDA-approved lender.

A USDA Streamline Refinance allows you to take advantage of market conditions even if you have little to no home equity. Although you can’t take cash out, this option could help you lower your interest rate or change the length of your loan term.

Rocket Mortgage^® doesn’t currently offer USDA loans, but we can still help you find the right refinancing option for your situation. Start your refinance application today or give us a call at (833) 326-6018.