Streamlining Your USDA Loan: A Comprehensive Guide to Streamlined Refinance Options

If you have a mortgage backed by the U.S. Department of Agriculture (USDA), you may be eligible for a streamlined refinance, which can help you access a lower interest rate and skip usual refinancing steps like a new appraisal. In this article, we'll explore what a USDA streamlined refinance is, the fees involved, the types of USDA streamlined refinance loans, the current rates, and answer some frequently asked questions.

What is a USDA Streamlined Refinance? A USDA streamlined refinance is a mortgage refinancing option backed by the USDA and reserved exclusively for current holders of USDA-backed mortgages. Available in all 50 U.S. states, these refinances hold three distinct advantages over many everyday refinancing loans:

1. No equity required: Both streamlined USDA refinance loans have maximum loan-to-value (LTV) ratios of 100%.
2. No home appraisal or inspection required: Fewer hurdles could reduce surprises on the way to the closing table.
3. Ability to finance closing costs and USDA fees: Save on out-of-pocket costs by rolling the closing costs and USDA fees (up-front and annual guarantee fees) into your new mortgage.

These refinances are rate-and-term refinances that give you a lower interest rate with a new mortgage. In other words, these USDA refinances aren't cash-out refinances that let you tap into your home's equity.

USDA Streamlined Refinance Fees Since you can roll your USDA fees into your new mortgage, it's important to know what those fees are. The USDA charges two separate fees when you close on a streamlined refinance loan:

1. Up-front guarantee fee: This USDA guarantee fee equals 1% of your total loan at closing. For example, a $100,000 streamlined refinance loan would have a $1,000 up-front fee.
2. Annual guarantee fee: You'll pay this fee annually, totaling 0.35% of your outstanding loan balance. To help ease finances, it's divided across your monthly payments throughout the year.

USDA home loans will also typically have closing costs, which vary by mortgage lender. These fees commonly include mortgage origination and processing fees, notary fees, and other costs. Your lender can provide you with a complete cost breakdown. If they don't, be sure to ask.

Types of USDA Streamlined Refinance Loans There are two types of USDA streamlined refinance loans - the standard streamlined and streamlined assist. To be eligible for either, you'll need to meet three criteria set forth by the USDA:

1. An existing USDA-backed mortgage (direct or guaranteed)
2. Have held your USDA mortgage for at least 12 months
3. A history of on-time mortgage payments, either six (standard) or 12 months (assist)

Each streamlined refinance option works differently, so it helps to consider both to make a more informed decision about refinancing your existing USDA loan.