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What Is USDA Streamline Refinance?
USDA streamline refinance means a comprehensible mortgage refinancing option offered by the USDA. The USDA streamlined refinancing is considered for homeowners who purchased their homes using a USDA-issued home loan.
An ideal example of refinancing USDA loan is Section 502 loan, which is a loan for low-income individuals and households in rural areas.
Understanding USDA streamlined refinancing
The choice of mortgage available to some rural and suburban homebuyers is called a USDA loan. These loans are issued by qualified lenders and it is guaranteed by the United States Department of Agriculture.
USDA streamline refinance is just like other federal streamlined refinancing options, like the FHA streamline refinancing, VA streamline refinancing, and HARP – Home Affordable Refinancing Program from Fannie Mae and Freddie Mac.
What does USDA streamlined refinancing do?
The USDA streamlined refinance gives an option to refinance for more affordable payment terms to the present USDA direct and guaranteed home loan borrowers who are having low or no equity.
The USDA streamlined refinance doesn’t require any new appraisal, except for direct borrowers who received subsidies during their loan term.
If the direct borrowers are unable to pay in full then the owed subsidy may subordinate this amount.
The program doesn’t require any credit review, but there would be a verification that the mortgage was paid for 12 months before the borrower applied for refinancing.
There would be no home inspections or calculation of debt ratios required.
Who may apply for this program?
The home should be the primary residence of the borrower if he wants to be eligible for the USDA refinancing program.
Current USDA homebuyers who have been current on their mortgage for 12 months before requesting loan refinancing can apply.
The borrower’s income should not exceed the adjusted annual income limit for the county or metropolitan statistical area where the home is located.
By refinancing the borrower must be able to reduce at least $50 on their monthly payments.
This loan allows the borrower to wrap their closing costs and escrow charges into the new loan amount. Helping homeowners receive a zero investment refinance for which no cash is needed upfront.
If you are heard about refinancing and wondering whether you can get a cashback on a USDA streamline refinance then the answer is No, the USDA refinance transactions are do not have cash-out opportunities to repay debt, get money for repairs, etc.
The cash-out options are available only in conventional loans like FHA and VA loans.
Additional types of USDA streamlined refinancing
The other refinancing programs are USDA standard streamline programs. This program too does not require any appraisal but homeowners need to provide proof of their current income and meet a few debt-to-income requirements.
The closing cost cannot be rolled into a new loan. As per this particular option, there is no requirement to drop the payment by $50 and as long as at least one of the original borrowers remains on the loan the current borrower listed on the note can be removed.
This program is beneficial especially in the case of a divorce.
Another option is Fannie Mae and Freddie Mac’s – non-streamlined refinance. This loan requires an appraisal.
And, the maximum loan amount eligibility is 100 % of the home’s current value and the new guarantee fee. It also needs credit and income requirements.
This type of loan may be sought by a borrower in order to avoid the $50 payment reduction requirement for the streamlined option or to un-list a borrower from the note.
This non-streamline option allows the borrower to roll their closing costs into the new loan.
The costing to do a USDA streamline refinance
Like all USDA rural housing loans, the USDA streamline refinance loan is subject to an upfront fee of 1% and an annual fee of 0.35%.
Conclusion
The USDA streamlined refinancing alternative, allows current USDA loan borrowers to take the opportunity of low or no equity to refinance for a more reasonable payment term.
Low- to moderate-income homebuyers are provided with lenient eligibility requirements that help them to purchase a home in rural areas by USDA loans.
Many borrowers are offered to refinance with no new appraisal or home inspection, and no new credit review through the USDA streamline refinance process.
