While the USDA Home Loan program is usually associated with purchasing a home, the loan program also extends to qualifying homeowners looking to refinance their existing USDA mortgage. Refinancing a current USDA loan can lead to a lower interest rate and/or lower payments. The qualification process for refinancing a USDA loan is quick and easy and generally requires no property inspection. It also doesn’t matter if your home is no longer in a USDA eligible rural area as long as it was when you received your USDA loan. This program is borrower friendly and a great way of lowering your interest rate and reducing your monthly mortgage payment. Below is information about two USDA mortgage refinance programs: USDA Pilot Refinance Program and USDA Streamline Refinance Program.
USDA Pilot Refinance Program
Currently available to USDA mortgage holders in 34 states, the USDA Pilot Refinance Program was initiated in 2012 to benefit particular states that experienced steep home value declines and unemployment rates during the economic recession. Current homeowners with USDA mortgages in these 34 states, through the USDA Pilot Refinance Program, can refinance their homes to secure a lower interest rates and lower monthly payments without a new credit report evaluation, without a new home appraisal (in the case of 502 guaranteed home loans), without a HUD Handbook minimum property determination, without a property inspection, and without a Debt-to-Income (DTI) determination.
Eligibility Criteria for USDA Pilot Refinance Program
You should contact us to discuss full applicant eligibility criteria, but below are some of the eligibility criteria for USDA Pilot Refinance applicants:
- Refinanced interest rate (if available) must reduce current interest rate by a minimum of 1%.
- While Debt-to-Income (DTI) ratios are not considered, applicants must meet current applicable USDA income eligibility requirements.
- Applicants must reside in an USDA eligible area or an area that was eligible at the time of the original mortgage.
- An applicant’s current mortgage must be a USDA home loan and the home must be their primary residence.
- An applicant must have made timely mortgage payments for the 12-month period prior to the pilot refinance (i.e., no 30 day late payments).
USDA Streamline Refinance Program
For current USDA mortgage holders seeking to refinance their home loans, but that do not reside in a “Pilot” state, there is a similar program called the USDA Streamline Refinance Program.
The USDA Pilot Refinance Program and Streamline Refinance Program are identical in many respects, including no new appraisal is required, 1% required interest rate reduction, reduced paperwork, and the current principle balance and USDA upfront fee are financed into the refinance mortgage. There are a few noteworthy differences between the refinance programs.
- North Dakota
- New Jersey
- Rhode Island
- West Virginia
- New Mexico
- South Carolina
- North Carolina
- South Dakota
Benefits of the USDA Pilot Refinance Program
The benefits of the USDA Pilot Refinance Program are numerous. Below are a few of the most significant features:
- New interest rate must be fixed, and to be eligible a 1% reduction in interest rate must possible.
- Current loan principal balance, eligible closing cost, and USDA upfront fee can be financed into refinanced mortgage (i.e., no out of pocket expense)
- No new home appraisal (for current holders of USDA 502 guaranteed mortgages)
- No credit qualification, only zero late mortgage payment history in previous 12-months
- No property inspection
- No Debt-to-Income (DTI) determination, only income verification
- Reduced paperwork and streamline loan approval process
Difference between USDA Streamline Refinance and Pilot Refinance Program
There are three major difference between the USDA Streamline Refinance Program and the Pilot Refinance Program, beyond what state the property is located in. First,the USDA Streamline Refinance Program requires an applicant to meet standard credit qualification criteria, not just the satisfactory recent 12-month mortgage payment history. A second difference is that the USDA Streamline Refinance Program will allow co-borrowers to be added to/removed from the refinanced mortgage, while the Pilot Refinance Program will not. The third major difference is that some closing cost cannot be financed into the refinanced mortgage under the USDA Streamline Refinance Program.