USDA Refinances allow homeowners to lower rates, shorten loan terms, or take out cash from the home’s equity. As with USDA loans, USDA Refinances are 100% financing. The one-time guarantee fee may be financed into the loan and paid out over small monthly payments. There are no limits on loan amount and single family, condos, and town homes are all eligible properties. Home inspections and appraisals may not be required in some cases. The minimum credit score accepted is 620 and owners must not have outstanding or delinquent federal debt, any collections reported within the previous year, or late mortgage payments.
Currently, mortgage rates are the lowest they’ve been in years, which means mortgages haven’t been this affordable in decades. The USDA made changes in 2016 that make it easier and quicker for homeowners to refinance their loans. If the home has been financed for longer than 12 months, income verification and appraisals aren’t needed to refinance for a 30-year term. There may not be a need to pull a new credit report. The refinance option is subject to the same underwriting process as a USDA loan, and only qualified homeowners are eligible.
Over 10,000 homeowners have already refinanced their USDA loans, saving them hundreds of dollars a month. The USDA is committed to providing middle-class Americans with the opportunity to own affordable homes and provide secure, safe housing for their families. There is no penalty for refinancing a USDA loan; in fact, USDA wants to ensure homeowners are getting the best rates available on their mortgages. The rates are reevaluated yearly in October, but homeowners have the option to refinance their USDA loans at any time. The monthly mortgage payment must be reduced by at least $50.00 in order to refinance the mortgage, but the average savings is over $150.00 a month.
As with USDA loans, there are no costs out of pocket for the homeowner. USDA Refinances permit closing costs to be wrapped into the transaction and these costs are generally less than at the time of purchase. The USDA guarantee fee may also be rolled into the loan. If the home is no longer in a USDA rural area—which may happen, especially if the home is on the outskirts of a large city—it may still be refinanced as a USDA loan.
The USDA’s Refinance option lets homeowners take advantage of low interest rates and keeps mortgages affordable. This brings more capital to rural communities and encourages growth in middle-class America. Rural homeowners may have lost equity in their home due to market adjustments, but the refinance option helps these homeowners lower their costs, regardless of negative equity or loan to value.