What Is USDA Streamlined Refinancing?

USDA streamlined refinancing refers to a simplified mortgage-refinancing option offered through the U.S. Department of Agriculture (USDA). USDA streamlined refinancing is intended for homeowners who purchased their homes using a USDA-issued home loan and provides an option for borrowers to refinance for more affordable loan terms.

Understanding USDA Streamlined Refinancing

The USDA loan is a mortgage option for some rural and suburban homebuyers. The USDA offers home loans directly and guarantees loans issued by qualified mortgage lenders. Qualification standards for these home loans are lenient compared to those of other mortgages. USDA loans are designed to help low- to moderate-income borrowers purchase homes in mostly rural areas. A Section 502 loan, which is a loan available to low-income individuals and households in rural areas, is one example of this type of loan.

The USDA has two programs to refinance direct and guaranteed loans—streamlined-assist and standard streamlined.

USDA refinancing is similar to other federal streamlined refinancing options, such as the Federal Housing Administration's (FHA) streamlined refinancing, Department of Veterans Affairs (VA) streamlined refinancing, and Home Affordable Refinancing Program (HARP) from government-sponsored enterprises Fannie Mae and Freddie Mac.

Eligibility Requirements for USDA Streamlined Refinancing

Two popular USDA refinancing programs include the streamlined assist and the standard streamlined program. With both programs, the refinanced interest rate must be equal to or below the current mortgage loan rate, and the mortgage must have closed 12 months prior to the loan application.

Streamlined Assist

• The home to be refinanced must be the borrower's primary residence
• The home must have its mortgage from a USDA direct home loan or a USDA-guaranteed home loan
• The borrower must have made 12 consecutive on-time payments before the refinancing application
• The refinancing must result in the borrower's payment decreasing by at least $50 per month

Unlike a typical loan application, there are no credit report, home appraisal, or property inspection requirements. Current income is not a qualifying factor either. The borrower must only document that their income falls within current USDA limits.

Standard Streamlined

Another refinancing program includes the USDA standard streamlined program. Similar to the streamlined-assist program, no appraisal is required, and homeowners underwater on their mortgage are eligible.

• The mortgage must be paid on time, as agreed for 180 days before the loan application
• Proof of income and credit documentation are required
• Borrowers must meet certain debt-to-income requirements, but waivers can be requested

The benefits of this particular option include no requirement to drop the payment by at least $50, and existing borrowers listed on the note can be removed as long as one of the original borrowers remains on the loan. The latter can be beneficial in the case of divorce.

USDA Streamlined Refinancing Rates

To refinance a guaranteed loan, check out the . They offer USDA loans, but the USDA does not recommend specific lenders. You'll need to shop around to ensure you get the best terms and a lower interest rate.

The interest rate for direct loans as of March 24, 2024, is 4.5%, but your effective rate can be as low as 1% after subsidies.

The Bottom Line

Borrowers can also save on fees since a new appraisal or home inspection is not required. However, the borrower must have made on-time payments for the last 12 consecutive payments, and the refinancing must result in at least $50 per month in savings.