While not as popular as the USDA’s streamline refinance, the non-streamlined refinance is wider in scope. The streamlined refi is available for all USDA guaranteed and direct loans that have not received a payment subsidy but the non-streamlined refi accepts both USDA loan types as they are. Let’s find out the other features that make up the USDA non-streamlined refinance.
The Non-Streamlined Refinance
Refinancing using the non-streamlined option entails replacing your existing loan with a fixed-rate mortgage with a repayment term of 30 years. The USDA requires that the interest rate on the new loan be lower than on the current loan.
Prior to any request for a refinance, 12 months must have gone by since the loan’s closing date. The loan must also be current for the past six months leading to the refinance request
Cash-out refinancing is not allowed for non-streamlined refi loans.
To refinance your existing USDA loan means submission of a new appraisal on your home. This new appraised value will serve as the basis for your new loan’s maximum amount, excluding the upfront guarantee fee.
Maximum Loan Amount
The maximum loan amount you can refinance should not exceed the home’s new appraised value but certain costs can be included up to the home’s new value, as appraised. These items are:
- The original loan’s principal and interest balance
- Closing costs
- Funds to set up a new tax and insurance escrow
The upfront guarantee fee may be financed on top of the new appraised value.
Payment subsidies on USDA Direct Loans that were/or approved after 1 October 1979 are subject to recapture. By subsidy recapture, this entails payment of all or part of the subsidy received on the loan when the following occurs:
- The property is sold.
- The property is transferred.
- The property is no longer occupied by the borrower.
If your USDA Direct Loan to be refinanced is subject to a subsidy recapture, you have the option to finance or defer the recapture.
Credit, Debt-to-Income Ratio
The lender will analyze your credit score/report according to Chapter 10 of the Guaranteed Loans Handbook, which includes a credit analysis on borrowers with a nontraditional credit profile.
Your monthly housing expense-to-income ratio may not exceed 29% and your total monthly debt-to-income ratio not more than 41%. You may be exempted from this 29%/41% DTI requirement if you show strong compensating factors. This includes a satisfactory payment history on your current USDA loan.
You may add borrowers to the new refinance loan and the existing borrowers may be removed from the loan contract. However, at least one of the original borrowers should remain on the new loan.