Can You Refinance a USDA Loan?
Homeowners who currently have a USDA loan have three options for refinancing when the time is right. These include the USDA streamlined refinance loan, the USDA streamlined-assist refinance loan, and the USDA non-streamlined refinance loan.
Neighborly AdviceUSDA loan refinancing is only available to those with existing USDA loans. If you have a USDA direct loan, meaning you worked directly with your local USDA branch and not a mortgage lender on your first USDA home loan, you also have the same refinance options available to you. Neighbors Bank can help you with a USDA refinance loan, whether you have a USDA direct loan or a USDA loan from a different lender.
Emily Kittle, Underwriter
USDA Loan Refinance Options
Each USDA refinance option varies in terms of documentation, appraisal requirements, and borrower qualifications. Let’s review each of the three options so that you can determine which is best for you.
Streamlined Refinance
The USDA streamlined refinance program allows borrowers to refinance their current loan with closing costs and the upfront guarantee fee rolled in. The upfront guarantee fee is the same fee paid on your original USDA loan, and it also applies to refinances. You can also add and remove borrowers with a streamlined refinance.
To qualify, your current USDA loan must have been closed at least 180 days before your refinance application is submitted, and all mortgage payments in the past 180 days must have been on time (no payment can be 31 or more days late). The streamline refinance loan also requires income and credit documentation. However, an appraisal is not required unless you have a USDA direct loan and receive a payment subsidy.
Streamlined-Assist Refinance
Streamlined-assist refinance is typically the most popular refinancing option during a low-rate environment. Like the option above, a new appraisal is only required if you have a USDA direct loan and receive a payment subsidy. The streamlined-assist refinance requires income and asset documentation. However, you don’t need to provide credit documentation or show a debt-to-income ratio.
Similar to a USDA streamline loan, to qualify for a USDA streamlined-assist refinance, you must meet the following requirements:
- 180 days since closing: Your current USDA loan must have been closed at least 180 days before you submit a refinance application.
- On-time payments on your current loan: All mortgage payments in the past 180 days must have been made on time (no payment can be 31+ days late).
- Net tangible benefit: The refinance must provide a tangible benefit to the borrower. A tangible benefit is defined as a $50 or greater reduction in the combined monthly principal, interest, and annual fee compared to the existing payment.
Non-Streamlined Refinance
The non-streamlined refinance involves a more traditional underwriting process. It requires full income, credit, and asset documentation, and always requires a new appraisal.
This option allows borrowers to roll in items like the upfront guarantee fee, closing costs, and subsidy recapture (if you have a Direct Loan). The updated appraisal can offer more flexibility if your home has increased in value.
To qualify, the same 180-day rule applies as with the other USDA refinance options, meaning your loan must have closed at least 180 days before application, and all mortgage payments during that time must have been on time.
Does the USDA offer a cash-out refinance option?
Unlike other mortgage programs, USDA loans do not offer a cash-out refinance option. If you want to tap into your home’s equity, you’ll need to refinance using a different loan type, like a conventional, VA, or FHA loan.
USDA Refinance Loan Comparison
Let’s take a look at how the USDA refinance options compare side by side.
| Streamlined | Streamlined-Assist | Non-Streamlined | |
|---|---|---|---|
| Appraisal Requirement | Sometimes required | Sometimes required | Always required |
| Current Mortgage Requirements | Loan must be 180+ days old and have no late payments in the past 180 days | Loan must be 180+ days old and have no late payments in the past 180 days | Loan must be 180+ days old and have no late payments in the past 180 days |
| Accepted Loan Modifications | Add new or remove existing borrowers | Add new borrowers or remove deceased borrowers | Add new or remove existing borrowers |
| Closing Cost Allowances | Allows financing for closing costs and the USDA guarantee fee | Allows financing for closing costs and the USDA guarantee fee | Allows financing for closing costs and the USDA guarantee fee, and subsidy captures |
USDA Refinance Guideline FAQs
Here are some of the most frequently asked questions about USDA refinancing guidelines.
How soon can you refinance your USDA loan?
The amount of time before you can refinance (also known as the seasoning requirement) for USDA refinances is 180 days. This means you can’t refinance a USDA loan until approximately 6 months after closing.
How much does it cost to refinance a USDA loan?
Refinancing a USDA loan usually comes with closing costs, which can include things like lender fees, title charges, and appraisal fees (if required). These costs typically run 2–5% of your loan amount, but USDA allows you to roll them into your new loan in many cases.Example:On a $200,000 loan, closing costs might range from $4,000 to $10,000. However, some of these costs can be added to your new loan balance instead of being paid out of pocket.
Is the USDA guarantee fee required for a USDA loan refinance?
Yes. Just like with a new USDA loan, refinances require an upfront guarantee fee (currently 1% of the loan amount) and an annual fee (0.35% of the remaining principal, added to your monthly payment).
How does refinancing affect your USDA loan?
Refinancing can lower your interest rate or monthly payment, but may also extend your loan term. You won’t be able to take cash out, and any unpaid interest or fees rolled into the new loan could increase your overall balance.
Will my loan term restart when I refinance?
Yes, USDA refinances reset your mortgage term to 30 years. This can lower your monthly payment but might result in paying more interest over time.
What eligibility requirements still apply when refinancing?
To refinance with USDA, you must continue living in the home as your primary residence and meet household income limits. The property’s rural eligibility is not a concern. The USDA allows refinancing even if the home is no longer in an eligible area, as long as the original loan was USDA-backed.
*By refinancing the existing mortgage loan, the consumer's total finance charge may be higher over the life of the loan.