USDA Streamline Refinance: Everything You Need To Know
Kevin Graham4-minute read
March 17, 2021
City living was never for you. Maybe you’ve settled on the edge of suburbia or in an area with more wide-open spaces. If that’s the case, perhaps you took advantage of a USDA loan for its numerous benefits including no required down payment and lower guarantee fee rates. If this is you, a USDA Streamline Refinance could be a good option. It also has downsides.
Although Rocket Mortgage® doesn’t offer USDA loans of any kind at the moment, including USDA Streamlines, we want you to be fully educated on all your mortgage options.
What Is A USDA Streamline Refinance?
If you have an existing USDA loan, a USDA Streamline offers several benefits if you’re looking to refinance your home. They include the following:
- This is great for people with little to no home equity. You can use a USDA Streamline refinance to do a rate/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 rate, shorten or lengthen your term even if your property value or lack of time making payments on your house mean you don’t have much home equity at the moment.
- In most cases, no appraisal is required. Because you’re going from an existing USDA loan into another one, there’s often no appraisal required. The only exception to this is if you received a subsidy as part of getting a direct loan from the USDA before your current refinance.
- There’s no inspection necessary. Because you’re already in the home, you won’t be paying again for a home inspection. You know where you stand with your home, warts and all.
- 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, there may not be a credit check required. It’s important to note that USDA policy may also differ from the policy of the lenders themselves, so shop around.
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What Are The Different Types Of USDA Streamlines?
One thing that separates USDA Streamlines from similar offerings from other loan types is that there are actually two different options. Let’s run through the eligibility requirements for a USDA Streamline-Assist refinance before taking a look at the similarities and differences at a house with a USDA Standard Streamline.
USDA Streamline-Assist Refinance
For reasons we’ll get into in just a second, a USDA Streamline-Assist refinance is the more popular of the two streamline refinancing options for refinancing USDA loans. Before we get there, let’s run through the big requirements.
- The home has to be your primary residence – where you live for the majority of the year.
- Your current mortgage has to be either 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 have to have at least made 12 consecutive payments on your existing USDA loan.
- Your monthly mortgage payment – including principal, interest, taxes and insurance – has to be a minimum of $50 lower after the refinance than it was before.
As part of the Streamline-Assist option, no credit check is required and no special ratios are calculated, so it can be easier to qualify. Income isn’t a factor. Additionally, no appraisal or inspection is necessary if you haven’t received a subsidy. Finally, things like escrow fees and other closing costs can be included in the loan amount to reduce or eliminate upfront fees.
USDA Standard Streamline
A standard USDA Streamline is a bit harder to qualify for the nice Streamline-Assist refinance, but it still may be a good option. Let’s go over the qualifications:
- The home has to be your primary residence.
- Your existing home loan has to be either directly from or guaranteed by the USDA.
- Your existing home loan has to be at least a year old before you can get a conditional approval on your Streamline.
- You have to prove your income and qualify within USDA debt-to-income (DTI) ratio
- Standard credit guidelines apply.
- You have to have made on time payments for the last 6 months.
Other than credit and income guidelines being more strict, many of the other features of the Streamline-Assist are carried over. For example, no home inspection or appraisal is required. Closing costs can still be built into the loan.
What Are The Downsides Of A USDA Streamline?
The main downsides to a USDA Streamline are guarantee fees. These are upfront and annual and function like mortgage insurance. Unlike conventional and certain FHA loans, guarantee fees on USDA loans stick around for as long as you have the loan.
This contrasts with conventional loans where you don’t have to pay for mortgage insurance if you have 20% or more existing equity in your home. For this reason, a conventional loan can be more attractive, especially if you find yourself building higher equity amounts over time.
What 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.
The only location requirement is that you be in an area that would normally be USDA eligible, typically on the outskirts of suburbia or in a rural area far away from major population centers.
The Bottom Line On The USDA Streamline Refinance
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 could help you lower your rate or change your term.
There are a couple of different USDA Streamline options including a standard Streamline and something called USDA Streamline-Assist. Streamline-Assist is slightly easier to qualify for because there is no creditor or income check. No matter which when you get, no appraisal or home inspection is required.
The downsides of a USDA Streamline are lifetime guarantee fees on the loan, which may make a conventional loan better for some. After rolling out as a pilot initially, USDA Streamlines have now been expanded to all 50 states.
Rocket Mortgage® doesn’t offer USDA loans of any kind right now, but we can help you find the right refinancing option for you. Feel free to talk to one of our Home Loan Experts today!
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