If you currently have a USDA loan, you have several options available to you when you want to refinance. These refinance options include a pilot, streamline and non-streamlined refinance. The difference between the programs is how you verify your eligibility. The streamline program, as the name suggests, is much simpler, but has stricter guidelines. The non-streamlined refinance offers a little more flexibility for USDA borrowers and the pilot program has its own requirements.
The USDA Streamline Pilot Loan
The USDA Pilot Streamline Loan began to help current USDA borrowers save money every month. With this program, you do not need to verify the information you already verified with your original loan. The USDA and the lender do not care about your income, debt ratio, credit score, or the value of your property. They strictly look at your housing payment history to determine your eligibility. As long as you paid your current mortgage payments on time for the last 12 months, you may be eligible. You are allowed to have one 30-day late payment in this time, but no late payments during this time is even better.
In addition, you must prove that you intend to occupy the property as your primary residence and that your payment will lower as a result of the refinance. This is the reason behind the program – to make your payment more affordable. The USDA offers the streamline program to help borrowers who may have obtained their original mortgage during a time when interest rates were higher. Now that they are lower, there is money borrowers can save. The problem occurs when borrowers changed jobs, lost value in their home, or had a negative credit event occur. In these cases, a fully verified loan would not apply to them. With strictly using your payment history, a lender can refinance your USDA saving you money.
With the streamline program, you can only refinance the amount of the outstanding principal on your current loan, plus the new funding fee and any eligible closing costs. Because there is no appraisal required, you may end up slightly upside down on your new mortgage. This will not exclude you from this program – the USDA does not require you to verify the current value of your property. If you can currently afford your higher payment, you will be able to make the lower payments the refinance provides, which is what the USDA wants to offer.
Lastly, with the pilot program, any borrower currently on the USDA loan must remain on it. You cannot add or delete anyone from the loan with the pilot program. If you need to change borrowers for any reason, you will need to use the standard streamline or the fully verified USDA refinance options.
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The Standard USDA Streamline Refinance
The USDA also offers a standard streamline refinance. This option was available to everyone prior to the release of the pilot program. Today, the pilot program is available in most states, rather than the select few it began in, so the streamline refinance is not as popular. This program is similar to the pilot program, with a few exceptions:
- The lender must pull your credit and fully evaluate it for the streamline refinance.
- Your debt ratio cannot exceed 29/41 unless you have an approved waiver
- You cannot roll the closing costs into the loan; only the 0.5% funding fee may be rolled into the loan
- You may add or delete borrowers from the current loan as long as one borrower remains the same
Everything else remains the same as the pilot program. The funding fee and MIP are equal. You also do not need to pay for a new appraisal or verify your income for qualifying purposes. The lender may need to see bank statements or paystubs to verify that you do not exceed the USDA income guidelines for eligibility, though.
Standard USDA Refinance Options
There are also the standard USDA refinance options available. Unlike the streamline versions, you need to fully verify every aspect of your loan application for this option. In this case, you verify:
- Income
- Credit score
- Property value
You cannot exceed a debt ratio of 29/41 without a debt ratio waiver on this loan, just like the standard streamline refinance. In addition, the value of your property must exceed the new loan amount. You are able to take cash out of the equity of your home, if you have any. The loan amount cannot exceed the value of the property, though. This includes any amount you add to the loan, including the funding fee, accrued interest, or the closing costs. This refinance option requires the most verification and takes the most time to process, but it gives you access to the equity in your home.
In order to determine the right option for you among the refinance options available, you must determine the reason for refinancing. Do you need to take cash out of the equity of your home? Do you strictly want to lower your payment? These are a few of the questions you need to answer to find the right answer. All of the options require you to pay lender fees, including an origination fee in some cases, as well as third-party fees, including title search and title insurance. The right choice for you will be the one that offers you the most savings and the outcome you desire, whether that means cash in your hand or strictly a lower payment to help you save money every month.
