USDA Streamline Refinance: Everything You Need To Know

*As of July 6, 2020, Rocket Mortgage^® is no longer accepting USDA loan applications.

If you have a U.S. Department of Agriculture (USDA) loan and decide to refinance your home loan, a USDA Streamline Refinance could be a good option. A USDA Streamline gives eligible borrowers an opportunity to take advantage of low interest rates and change to more favorable loan terms, even if the homeowner hasn’t built a lot of equity in their home.

Before deciding whether a USDA Streamline Refinance is right for you, it’s important to understand the requirements, limitations and how they compare to other refinancing options.

What Is A USDA Streamline Refinance?

A USDA Streamline Refinance that allows you to replace your current USDA loan with a new USDA loan, usually to take advantage of lower interest rates. There are several benefits to a USDA Streamline:

• Little to no home equity needed: You can use a USDA Streamline Refinance to do a rate-and-term transaction up to the full value of your property. This means you can use it to take advantage of market conditions if you want to lower your interest rate or change your loan term, even if you haven’t built much equity in your home.
• No appraisal required: Because you’re going from one USDA loan to another, a home appraisal isn’t required in most cases. The only exception is if you received a subsidy as part of getting a direct loan from the USDA before your current refinance.
• No inspection necessary: Because you’re already living in the home, you won’t have to pay for a home inspection either.
• Credit flexibility may be available: The USDA doesn’t set a minimum qualifying credit score, but as a practical matter, it’s harder to get approved with a FICO^® Score below a median of 640.

That said, depending on the type of Streamline you’re applying for, a credit check may not be required. It's important to note that USDA policy may also differ from that of an individual lender, so be sure to compare mortgage providers.

How Does A USDA Streamline Refinance Work?

To pursue a USDA Streamline Refinance, you’ll need to work with a lender approved by the USDA. Keep in mind that just because you secured your original mortgage through a lender, it doesn’t mean you’re obligated to use the same one. Depending on the lender, you might have to switch to find one offering USDA Streamline Refinances.

Once you’ve chosen a lender, you’ll need to decide which USDA Streamline option you’d like to apply for. There are two different types, each with slightly different requirements. Depending on what you choose, you may be able to skip getting a home appraisal, which is usually required when refinancing.

USDA Streamline Refinances don’t allow you to take cash out from your equity. The purpose of the refinance is to lock in a lower interest rate, which usually reduces your monthly mortgage payment. However, you’ll be allowed to add names to the mortgage. In some instances, you’ll also be able to remove them.

USDA Streamline Refinance Requirements

One feature distinguishing a USDA Streamline from other types of mortgage refinances is that it’s available in two options: a USDA Streamline-Assist Refinance and a USDA Standard Streamline Refinance. The eligibility requirements are slightly different depending on which one you choose.

USDA Streamline-Assist Refinance

A USDA Streamline-Assist Refinance is the more popular of the two streamline refinancing options for refinancing USDA loans. Here are the main requirements:

• The home has to be your primary residence where you live most of the year.
• Your current mortgage has to be a USDA Direct Home Loan or a USDA Guaranteed Home Loan.
• Your existing home loan must be at least 12 months old before you can receive conditional approval on your new loan.
• The mortgage must be paid as agreed for at least 12 months prior to applying for the loan.
• The new interest rate must be at or below the current interest rate on the loan.
• Your total monthly mortgage payment must be a minimum of $50 lower after the refinance.
• If you have received a subsidy, an appraisal may be required.
• All original borrowers must remain on the loan after refinancing. However, new borrowers can be added to the loan.

The Streamline-Assist option doesn’t require a credit check, income verification or special ratios to be calculated, so it’s usually easy for borrowers to qualify. Also, closing costs could be rolled into this loan.

USDA Standard Streamline Refinance

A USDA Standard Streamline Refinance is a bit harder to qualify for than a Streamline-Assist Refinance, but it still may be a good option for eligible borrowers. Here are the requirements:

• The home has to be your primary residence.
• Your existing home loan has to be directly from or guaranteed by the USDA.
• You cannot have received a subsidy for the loan.
• Your existing home loan must be at least a year old before you can get a conditional approval on your Streamline.
• You must prove your income and have a USDA-qualifying debt-to-income ratio (DTI).
• Standard credit guidelines apply.
• Your mortgage must be paid as agreed for the last 180 days.
• The new interest rate must be at or below the current interest rate.

Other than stricter credit and income guidelines, many of the requirements for a Streamline-Assist are the same with a USDA Standard Streamline Refinance. Also, closing costs may be rolled into the loan and borrowers may be added or removed from the loan during this refinance.

USDA Streamline Refinance Rates

According to the USDA, the low-income and very low-income borrower interest rate for Single Family Housing Direct mortgages was 4.875% as of July 1, 2024. When modified by payment assistance, that interest rate can be as low as 1%.

Be sure to compare your options through the USDA’s list of approved mortgage lenders to ensure you’re getting the best interest rate and loan term for your situation.

USDA Streamline Refinance Downsides

While there are many potential advantages to a USDA Streamline, here are some drawbacks to be mindful of.

• It may be difficult to find a lender. Not all lenders offer USDA loans. In order to secure a USDA Streamline Refinance, you’ll need to work with a USDA approved lender, which limits your options.
• You’ll have to pay closing costs. When you refinance a USDA loan, you’ll have to cover closing costs on the new loan.
• You’ll have to pay guarantee fees. Unlike private mortgage insurance (PMI), USDA guarantee fees don’t fall off the loan after reaching a certain amount of equity. You’ll have to pay them for the life of the loan, even if you refinance.

The Bottom Line: A USDA Streamline Refinance Can Lower Costs

A USDA Streamline Refinance allows you to take advantage of market conditions even if you have little to no home equity. Although you can’t take cash out, this option could help you lower your interest rate or change the length of your loan term.

Rocket Mortgage^® doesn’t currently offer USDA loans, but we can still help you find the right refinancing option for your situation. Start your refinance application today or give us a call at (833) 326-6018.