The USDA streamline refinance program has seen changes since 2012 in certain states. The changes were just seen a select few states, which has since expanded to 34 different states since that time. As of June 2, 2016, these changes are to take effect throughout the country, making it easier for everyone that currently holds a USDA guaranteed loan to refinance without much work on the borrower’s part. The changes will make it possible to refinance from a USDA loan into another one with a lower interest rate and very few qualifying requirements.
The USDA Loan Requirement
The first requirement in order to take advantage of the USDA streamline refinance program is that you currently hold the note to a USDA loan. The date of the origination of your original USDA loan does not matter. The only requirement is that your current loan is guaranteed by the USDA, not the FHA, VA, or a conventional loan.
The Housing History Requirement
One of the only verification requirements on the USDA streamline refinance program is the verification of your housing history. The lender and the USDA need to know that you are on time with your housing payments for the past 12 months. You cannot have any late housing payments during that time, which the lender and the USDA can verify with your current lender or your credit report, whichever method they see fit to use.
The Verifications that are not Required
One of the largest advantages of the new USDA streamline refinance program requirements is the lack of verifications that are necessary. With a typical refinance, you are required to verify your income, credit score, home value, and debt to income ratio. With the USDA’s new rules regarding the streamline refinance, none of these requirements are necessary. You can refinance strictly with the verification of your housing history. Let’s take a look at what this can mean for various situations:
- With no appraisal, you could potentially be upside down on your loan if the value of your home went down far enough that you owe more than the home is worth at the moment
- With no income verification, your income could have changed and you could be making less than before, making your debt ratio higher than when you qualified originally
- With no credit score requirement, you could be past due on several financial responsibilities aside from your housing payments and still get a loan
A Good Decision
The studies have been conducted in the states that the USDA streamline refinance program was offered and it was determined that as long as the housing history is on time, lowering the interest rate on a USDA loan makes sense. Borrowers that always made their housing payments on time were even more likely to do so with a lower payment. Because of this, it was not necessary to verify other factors of a borrower’s likelihood to succeed on the USDA loan program. It makes sense to lower a borrower’s payment, making it even easier to afford a housing payment. If a borrower defaulted on other responsibilities, he might be able to make good on those financial liabilities after the mortgage is lowered with a lower interest rate.
The Hard and Fast Rule
The one hard and fast rule that any USDA streamline refinance program loan must abide by is the fact that the interest rate is lowered by at least 1 percent. If the interest rate cannot lower as much as a full percentage point, the borrower must undergo the full refinance program, which means verifying all aspects of the qualifying factors. If, on the other hand, the interest rates fell enough that the borrower can save 1 percent or more, there is no reason to verify anything else.
If you think you are eligible for the USDA streamline refinance program, consult with various lenders in your area. Not every lender will be willing to take a refinance at face value, accepting all of the original qualifying factors that were used for your original qualification on the USDA loan you hold now. Some lenders will add their own requirements, making it a little harder to qualify for the streamline program. There are lenders out there, however, that are willing to abide by the streamlined guidelines put forth by the USDA. Shop around until you find a lender willing to do just that to take advantage of this program!