The USDA rolled out a pilot program in 2012 to help underwater homeowners refinance their home. Homeowners in a few lucky states were able to take advantage of this program. It didn’t matter if they were upside down on their loans. They only had to meet a few simple requirements and they could refinance, saving money each month.
Today, the program has been rolled out to many more states. This gives many more homeowners the opportunity to refinance into a lower interest rate. The best part about it is the lack of information the lender needs to process the loan. They take streamline to a whole new level with this program.
Housing Payment Requirements for the USDA Streamline
If there’s one area the USDA is strict about, it’s the housing payment history. You cannot be delinquent on your payments for this program. That’s the only real requirement the USDA enforces. They want proof that you made your last 12 payments on time. If you didn’t you can’t refinance with the USDA streamline loan.
The USDA uses the housing payment history as a gauge of how well you can afford the loan. Why would they endorse another lender to give you a loan if you can’t afford the one you have? The new loan will have a lower payment, so if you can prove you can afford the current loan, you’d be in good shape. It’s also a way for lenders to feel good about writing a loan for a borrower that they verify such little information.
If you do have a delinquent payment, you’ll have to wait until you have 12 months of timely payments again. There are no time restrictions on the loan. If you find that you must wait because of a delinquency, don’t worry. Just make your next 12 payments on time.
Dealing With Lender Overlays
Aside from the housing payment history, the USDA refinance program is very lenient.
You don’t need to verify any of the following:
- Credit score
- Appraised value
These are the requirements coming from the USDA though. The USDA does not fund USDA Guaranteed loans, though. The lender funds them. This gives the lender leeway to impart their own overlays. For example, if a lender wants to see your credit, they may ask for permission to pull it. They may want to see what type of consumer you are. If you have a lot of late payments on your other accounts, they may hesitate to give you a new loan.
If you do find a lender with a lot of overlays, you can look for another lender. No two lenders will have the same overlays. If you know you have an issue, find a lender that takes the bare minimum verifications when applying for the USDA streamline loan.
A Few Strict USDA Refinance Requirements
Aside from the housing history, the USDA does have a few strict requirements you must follow:
- You must have a USDA loan now – You can’t use the program to refinance from an FHA, VA, or conventional loan. Only USDA loans are acceptable for the streamline program. If you want to refinance into a USDA loan and have another type of loan now, you can use the traditional USDA refinance program.
- You can only take a 30-year term. This isn’t a program that allows you to decrease your loan term. You must stick with a new 30-year term.
- Your payment must decrease at least $50 per month. The USDA requires this net tangible benefit. If your payment doesn’t decrease at least $50, the USDA doesn’t see the refinance as worth it. Remember, you still have to pay closing costs and the funding fee on the USDA loan for the refinance.
- Your home must be owner occupied. You must prove to the lender that you will continue to live in the home as your primary residence. USDA loans are not for investment or second homes.
The USDA Streamline Saves you Money
In the end, the USDA streamline loan can really save you money. Not only do you save on your monthly mortgage payment, you also save on the refinance. Taking out a new loan costs money. You usually have to pay for a credit report, appraisal, loan processing, and other miscellaneous fees.
Since the lender has very little work to do on your loan, their fees usually decrease accordingly. You can save as much as $500 right off the bat without the appraisal. The lender will likely also charge fewer fees because they won’t have as much work to do.
When it’s all said and done, you’ll get a refinanced mortgage with a lower rate and lower payment. It will cost you less out of pocket and leave you with a more affordable mortgage.
If you currently have a USDA loan, consider the USDA streamline refinance. It’s a great way to save money on interest and pay more towards your principal each month. Shop around for the lender with the lowest rate and best fees. Then get the ball rolling and start saving money as soon as you can!