Streamline and underwriting do not often seem to go hand-in-hand. When you apply for a mortgage it seems like the lender wants to know everything but your blood type, right? The good news is that if you have already gone through the original underwriting requirements to obtain a USDA loan, you can relax with the newest USDA streamline underwriting requirements. With a few simple steps, you could decrease your interest rate and save money every month.
The Simple USDA Streamline Underwriting Requirements
If interest rates are currently lower than your existing interest rate on your USDA loan and you can meet the following USDA Streamline underwriting requirements, you could be on your way to saving money every month:
– You can prove owner occupancy of the home you wish to refinance
– You currently hold a USDA mortgage
– Your current USDA mortgage does not have more than one 30-day late payment in the last 12 months
This is all that the USDA requires for you to qualify for a USDA Streamline Refinance.
No Appraisal Required
Perhaps the best news that USDA mortgage holders want to hear is that there is no appraisal necessary for the streamline refinance. The USDA does not require lenders to order any type of appraisal, not even just a drive-by appraisal. There is a good reason behind this theory, though.
If your house value dropped significantly from when you first purchased the home, but you continued to make your current housing payments on time and remained living in the home, you will probably continue to do so. One of the requirements of the USDA Streamline loan is that your interest rate decreases at least 1 percent. This means that you will pay significantly less money in interest every month and more towards the principal. This helps you gain equity in your house faster, despite the fact that your house lost so much value.
This is not to say that every home in the United States located in a rural area lost value or did not gain it back already. There are some areas that are still struggling though and the USDA wants to help those homeowners refinance in order to entice them to stay in the home and to continue making their mortgage payments.
No Credit Required
Again, another hurdle you had to cross with the original USDA loan is not a problem with the USDA Streamline loan. You do not need to have your credit pulled. This could mean that you have late payments on other debts – just not the mortgage. The USDA feels that if you have a solid housing history, that they do not need to see how your other debts perform. You obviously put priority on your housing and with the lower payments after the streamline refinance, they will be even easier to afford.
The Strict Requirements
Despite the few very giving requirements the USDA has for the USDA streamline underwriting requirements, there are a few strict requirements that you must meet. Typically, there are no exceptions to the following rules:
– The interest rate has to be at least 1 percent lower in order for the loan to make sense
– You must take out another 30-year term loan
– The new payment including the principal, interest, taxes, and annual fee has to be at least $50 less than the original payment
The other strict requirement with the streamline program is that you cannot include anything in the loan except the outstanding principal on the existing loan as of the date of the intended payoff and the new guarantee fee, which equals 2 percent of the loan amount.
This means you cannot include any closing costs or cash out, if you have any equity in the home. The idea behind the program is to help you save money, as you can see from the requirements above. If you were to add closing costs or cash-out into the terms, the payment would probably not be lower and the interest rate would probably not be as low either, both of which would violate the requirements of the program.
The USDA Streamline Refinance program is available in more than 30 states now. It started out as a beta project that was only available in a select few states. A USDA lender will know whether or not your home is eligible for this program. If it is and you meet the USDA Streamline underwriting requirements, it is well worth the effort to refinance and save money every month. It will give you a chance to get ahead financially as well as gain more equity in your home even faster than before.