The maximum LTV for the USDA Streamline Refinance is slightly different from the max LTV for any other program. This is simply because you can refinance up to 102 percent of the value of the home. While this scenario would be somewhat rare since most people do not refinance right after obtaining their original USDA loan, it is a possibility if it is the case for you.
What Constitutes the 102% LTV?
In order to refinance with the USDA Streamline program, your loan amount is limited to a few things:
– The outstanding principal balance of the USDA loan as of the day you will pay it off
– The 2% guarantee fee that every USDA borrower must pay
Since the USDA loan goes up to 100% of the value of the home, you can buy a home without putting anything down. If you refinance shortly after taking out the original USDA loan, you will likely have close to 100% of the principal to pay back still. This is because a majority of the payments you make during the first couple of years are towards the interest on the loan, rather than the principal. This is why the USDA allows a maximum LTV of 102% on the USDA Streamline Refinance.
The additional 2% of the 100% LTV comes from the guarantee fee. This fee is required no matter how many times you have held a USDA loan. If you refinance a loan of $100,000, you would have to pay an additional $2,000 to be able to use the program. This money does not need to come out of your own pocket, though; you can roll it into the loan amount.
Why Use the USDA Streamline Refinance?
It might seem strange to refinance 102% of the value of your home as it might feel like you are starting all over again. The fact of the matter is, though, that the USDA Streamline Refinance requires that you lower your interest rate at least 1% and your total payment at least $50 per month. This equals a minimum savings of $600, but most borrowers save significantly more than that. Even with the minimum of a $600 savings, you will gain equity in your home faster than you would have with your original USDA loan.
Another reason to use the USDA Streamline Refinance is that the USDA offers the lowest interest rates on the market. If interest rates decreased since you took out your original USDA loan, you stand to save even more. Chances are that even with the original interest rate, you have a rate that is lower than any FHA or conventional loan could have offered. With the ability to refinance, you stand to save even more money every month.
How is the Value Determined?
Perhaps the best news yet regarding the USDA Streamline Refinance is that the value of your home for refinancing purposes will be the value that the home was when you purchased it. The USDA Streamline program does not require that you have a new appraisal performed on the home. How does this benefit you? If your home’s value dropped after the housing crisis and has not yet increased enough, the lender and USDA will not care – you can still refinance at the original value.
You should beware, however, that there are some lenders that might require an appraisal on this program. These lenders are few and far between, but if they have reason to suspect that the value of your home dropped drastically, they might order an appraisal. You are not required to deal with this lender, however, you can shop around with different USDA approved lenders to see who will allow you to refinance without a new appraisal.
The maximum LTV for the USDA Streamline Refinance is one of the most lucrative maximums allowed on the market. If you currently have a USDA loan, it pays to see if you can save a significant amount of money each month. You will have to refinance into another 30-year mortgage, but with the savings you will obtain, you could pay extra towards your mortgage, getting your principal paid down even faster than you could have with the original loan.