Today, the housing industry is still trying to recover from the housing crisis. Not every area has seen full recovery and growth as of yet. In an effort to continue the growth and recovery, many agencies stepped in to make refinancing easier and more affordable. Among those agencies is the USDA who lowered the cost to refinance rural housing loans as of June 2016.
USDA Rural Housing Service Administrator, Tony Hernandez stated: “The changes the USDA made to the USDA Refinance program reaffirm the Obama Administration’s commitment to middle-class Americans.” He also states “Helping homeowners refinance their homes to reduce their monthly payments and take advantage of low interest rates will bring increased capital to rural residents and the communities where they live and work.”
What are the New USDA Changes?
The changes that strictly USDA borrowers with a current USDA loan can take advantage of include:
- No appraisal is necessary
- No credit report must be pulled
- No debt-to-income calculations are necessary
In order to qualify for this streamlined version of a refinance, however, borrowers must be current on their mortgage, with no late payments in the last 12 months and they must refinance into another 30-year term.
These changes help homeowners save money every month. The program, which began as a pilot program in a few states, rolled out into 34 states so far with 9,500 homeowners using the program. Among those homeowners, the average savings is around $150, but some saved as much as $600 per month.
The New Fees to Refinance Rural Housing Loans
In addition to the new streamline refinance program, the USDA slashed its guarantee fees. These are the fees the USDA charges each lender that writes USDA loans in order to continue to fund the USDA. These charges get passed along to the borrower both upfront at the onset of the loan and on a monthly basis. The upfront fee, which the lender charges can be wrapped into the loan amount and the lender divides the annual fee gets equally amongst the 12 months of the year.
As of October 1st, the upfront USDA guarantee fee decreased from 2.75% to just 1% of the loan amount. In addition, the annual USDA fee decreased to just 0.35% of the loan amount. According to the USDA, these lower fees are available because of positive borrower performance. In the past, the USDA had to bail out quite a few lenders as borrowers defaulted on their loans. Because the USDA guarantees a portion of the loan, they had to pay the lenders that faced default. Today, however, performance is better and the USDA reserves are higher. This is due to the strong partnership the USDA created with its approved lenders, ensuring that the lenders do not offer loans to borrowers that face the risk of default.
The Additional Savings
In addition to the obvious savings of lower USDA guarantee fees, borrowers will realize lower closing costs as a result of the lower cost to refinance rural housing loans. Without the need for an appraisal, credit report, and income verification, lenders do not have as many fees to charge borrowers. Because the USDA oversees the overall closing fees charged as well, it is now very affordable to use the USDA Streamline Refinance program.
With the very little amount of work necessary to work up a USDA streamline refinance, you stand to start saving money in the very near future. As long as you ensure that your housing history is perfect, which the USDA requires, you can opt for the streamline refinance. With today’s lower rates, it is very easy for borrowers to save money. Typically, borrowers see a decrease of at least 1% in their interest rate, which translates into significant savings over the life of the loan. Even if you do not have money to pay the guarantee fee at the closing, you can wrap the cost into your loan amount as long as the savings are still evident.
You can use any USDA lender to refinance rural housing loans. If you want to start with your lender to see how much it would cost and what terms are available to you, that is perfectly acceptable. Just make sure to shop around as there are a great deal more USDA lenders available today, each of which offer different interest rates and closing costs, helping you to comparison shop to find the best deal.