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Nov 10, 2024
Bigger the wallet ! What's new for your financiai plan?
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REFINANCING A USDA LOAN — ALL YOU NEED TO KNOW

Feb 06, 2024 By Susan Kelly

A USDA loan is a type of home loan guaranteed by the United States Department of
Agriculture. One of the significant benefits of this loan is that you are not
required to pay a down payment, which could be hard to pay for many people.

Moreover, the interest rates are also not very high, and there are no hard and
fast rules and regulations. These loans have unique eligibility criteria that
you won’t find in other types of mortgages.

Like every other home loan, you can refinance your USDA loan, too. There are
plenty of options available for refinancing, and you can choose the one that is
most suitable for you and for which you fulfill all the requirements. There are
a lot of benefits to refinancing a USDA loan.

Now, we will discuss the available refinancing options for a USDA loan.


USDA LOAN REFINANCING | AVAILABLE OPTIONS



Refinancing your mortgage could be a good option if you’re looking to improve
your finances. This can lower your interest rate, which can reduce your
borrowing costs. It can also reduce your monthly payment and give you more
flexibility in how you spend your money.

Refinancing can also provide you with access to your home’s equity. For example,
you may be able to take cash out of your mortgage to pay for home improvements.
Or, you could refinance your mortgage to a better-suited loan term.


1) STREAMLINED REFINANCE

The U.S. Department of Agriculture's streamlined refinance program allows you to
refinance your current loan with closing costs rolled in. This program was
introduced to the public in 2012. You can also add or remove borrowers with a
streamlined refinancing facility. This refinancing option does not always
require a new appraisal fee. The fee is only needed if you have taken a direct
USDA loan and have received a payment Subsidy. Some guidelines regarding this
refinancing facility include:

 * Borrower must meet the required credit score requirement
 * The home for which you have taken the loan should be your primary residence
 * The borrower’s income should fall within the criterion of income needed


2) STREAMLINED-ASSIST REFINANCE

This is usually the most demanding refinancing option with a low interest rate.
This refinancing facility requires you to pay an appraisal fee if you have
availed of a direct United States Department of Agriculture loan or are taking
advantage of a payment discount. If you want to apply for this refinancing, you
need to be up-to-date on your current mortgage for a minimum of the last 12
months. That's why it is hard to qualify for this refinance option.

This program provides the current direct USDA home loan borrowers with less or
no equity opportunity. In this way, they can refinance the program according to
more affordable payment terms. You can also add borrowers or remove the deceased
ones.


3) NON-STREAMLINED REFINANCE

In the case of a non-streamlined refinance, a new appraisal fee will always be
required. The advantage of a new valuation is that it provides you with
additional equity and the ability to refinance the loan balance, the closing
costs, and the guarantee fee. T

Customers must maintain a consecutive timely payment history for the last year
to avail of this refinancing facility. You can also add or remove new borrowers
in this option. Onething to remember is that the borrower's monthly expenses
should not exceed the income; otherwise, they would be disqualified.


HOW TO APPLY FOR A USDA LOAN REFINANCING?

You can apply for a refinance loan with a USDA-approved mortgage lender and
complete the loan application process with the lender. If you select a
simplified refinance, the documentation requirements may be low. Otherwise, you
may be required to provide income and employment information to get your loan
approved.


GENERAL REQUIREMENTS

 * Firstly, the property you buy must be in a USDA-designated rural area.
   Fortunately, the majority of the U.S. is eligible for USDA loans.
 * Secondly, you must be a United States citizen.
 * Thirdly, you should have an excellent monthly income that falls within the
   given income criteria by the company.
 * And lastly, the property you are applying for should be your primary
   residence.
 * To be eligible for refinancing, your current USDA loan should be at least a
   year old.


USDA LOAN REFINANCE FEE



Like any other loan type, USDA loan refinancing requires some initial fees. To
qualify for it, you have to pay a 1 per cent guarantee fee or upfront fee and an
annual 0.35 per cent fee. The borrowers will also be asked to pay other closing
fees. You also have the option to cover these fees in your new loan.


PROS & CONS OF USDA LOAN REFINANCING


PROS:

 * It has lower interest rates as compared to conventional mortgages
 * This does not require a high credit score, which is a plus point
 * No problem if you have a high DTI (debt to income) ratio
 * You do not always need to pay a new appraisal fee


CONS:

 * USDA refinancing is a 30-year loan which is fixed. You can't shorten your
   loan period.
 * In order to qualify for refinancing, you ought to have a minimum credit score
   of 580 or more.
 * You will have to pay the guarantee fee again while refinancing your USDA
   loan.
 * You are not eligible for refinancing if your monthly income exceeds the
   defined limits.


CONCLUSION

In this article, we discussed refinancing a USDA loan, its benefits, and
available options. Refinancing your loan is always a good choice as it helps to
improve your financial status. You can choose a better option according to your
current needs and situation. The USDA loan refinancing facility is available to
all the USDA loan borrowers in the United States who are a permanent residents
there. So, if you are one of them, you must avail yourself of this golden
opportunity and refinance your loan.

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