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U.S. Department of Agriculture (USDA) loans are an alternative to conventional financing, designed to help people with low to moderate incomes become homeowners in certain rural areas.
Once you’ve become an established homeowner through this loan program, there may come a time when you want to refinance. Luckily, several options are available to you.
Here’s what you should know about refinancing a direct or guaranteed USDA loan:
- Can you refinance a USDA loan?
- What is a USDA refinance?
- USDA refinance types
- Refinance from a USDA loan to a conventional loan
- USDA refinance requirements
- USDA refinance benefits
- USDA refinance rates
- How to refinance a USDA loan
Can you refinance a USDA loan?
Yes, you can refinance a USDA loan. As long as you meet certain requirements, you can replace your loan with a new USDA loan under one of the three USDA refinance programs.
In some cases, you may prefer — or only be eligible for — a conventional, non-USDA refinance.
What is a USDA refinance?
A USDA refinance allows you to replace your current USDA direct or guaranteed loan with a new USDA loan. You may want to do this to take advantage of lower interest rates.
The USDA offers three refinancing options:
- USDA streamlined assist refinance
- USDA streamlined refinance
- USDA non-streamlined refinance
Of the three options, the streamlined assist program is the most popular as it has the fewest requirements and allows you to refinance even if you have little or no equity in your home.
USDA refinance types
Depending on your situation, you may be able to refinance into one of the three USDA refinance programs. Keep in mind that all three require you to live in the home as your primary residence.
USDA streamlined assist refinance
Best if: Your home has lost value, your income has declined, or your credit score has decreased.
A streamlined assist refinance is the most popular type of USDA refinance, according to Rural Development. If you have a USDA direct or guaranteed home loan and little to no home equity, this option could make your mortgage payments more affordable. You also won’t need to obtain a new home appraisal, unless you received payment assistance on your direct loan.
USDA streamlined refinance
Best if: You have too much home equity to qualify for a streamlined assist refinance.
A USDA streamlined refinance is harder to qualify for than a streamlined assist refinance. You’ll need to pass a credit check and meet debt-to-income requirements. However, like a streamlined assist refinance, you won’t have to pay for a new appraisal unless you’re a direct loan borrower who received payment assistance.
USDA non-streamlined refinance
Best if: Refinancing won’t lower your monthly mortgage payment by at least $50.
Of the three USDA refinance options, a non-streamlined refinance is the hardest to qualify for and has the most closing costs. You’ll have to pass a credit check, meet debt-to-income requirements, and pay for a new appraisal.
Refinance from a USDA loan to a conventional loan
If you meet the financial requirements to refinance into a conventional loan, it may be a better option than a USDA refinance. With a credit score of at least 620 and at least 3% home equity, it’s worth applying to see what rate and terms you qualify for.
You won’t have to pay an upfront or annual fee on a conventional loan like you do with the USDA’s loan guarantee fees, and that could save you money. You may have to pay for private mortgage insurance if you don’t have at least 20% equity, but you can ask your lender to cancel it once you reach the 20% threshold.
Three other reasons to consider a conventional refinance include:
- Your household income is too high for a USDA refinance
- You want to do a cash-out refinance
- You want a loan term shorter than 30 years
Shopping around and comparing rates from different lenders is one way to ensure you get a great refinance rate. Credible can help with this. In just a few minutes, you can compare prequalified refinance rates from all of our partner lenders — it’s free, and you don’t even have to leave our platform.
USDA refinance requirements
The requirements to refinance your existing USDA loan into a new USDA loan depend on which USDA loan program you choose. For instance, your debt-to-income (DTI) ratio won’t be considered with the streamlined assist option, but it will be with the other two options.
|USDA streamlined assist||USDA streamlined||USDA non-streamlined|
|Maximum housing payment as % of monthly income|
|Maximum housing payment + other debt as % of monthly income |
|Maximum loan amount||New loan can’t be larger than your existing loan plus closing costs and the USDA upfront guarantee fee||New loan can’t exceed original loan amount||New loan cannot exceed new appraised value|
|Waiting period since your existing loan closed||12 months||12 months||12 months|
|Payment history||No late payments in last 12 months||No payments more than 29 days late in last six months||No payments more than 29 days late in last six months|
|Credit requirements||None||Must meet USDA credit requirements||Must meet USDA credit requirements|
|Financial benefit required?||Yes; new monthly housing payment must be at least $50 lower than existing payment||No||No|
|Income||Can’t exceed program limits for your area||Can’t exceed program limits for your area||Can’t exceed program limits for your area|
You might have noticed that all three programs require a history of on-time mortgage payments. If you’ve fallen behind on your mortgage, you’ll need to get current with your loan balance or explore other options.
USDA refinance benefits
A USDA refinance has several benefits, including:
- Refinance with little to no equity
- Lower your monthly payment
- May not require a new home appraisal
- May not require credit underwriting
USDA refinance rates
Whether you’re refinancing into a USDA guaranteed loan or a non-USDA loan, your interest rate will depend on what lenders are offering. These offers will be based on a combination of what’s happening in the mortgage market and your financial strength as a borrower, including your credit score.
USDA guaranteed loan refinance rates are hard to find online. Many lenders don’t offer USDA loans, and those that do often don’t publish their rates. The best way to get a rate quote is to submit an application.
All USDA loans must have a fixed rate and a 30-year term. If you’re looking for a non-USDA loan, you may be able to refinance into a 15-year mortgage.
How to refinance a USDA loan
Before you try to refinance a USDA loan, you should know if enough time has passed since you took out your loan. How soon you can refinance a USDA loan depends on which refinance loan type you choose:
- USDA to USDA: If you’re refinancing into another USDA loan through the streamlined, streamlined assist, or non-streamlined programs, at least 12 months must have passed since you closed on your existing USDA loan.
- USDA to non-USDA: If you’re refinancing into a conventional loan, the lender decides how long of a waiting period to require, if any.
When you’re ready to refinance your USDA loan, follow these steps:
- Complete the loan application. You’ll enter some personal information and then provide information about your monthly income, monthly debt payments, property tax and homeowners insurance obligations, and assets. You’ll also disclose whether you’re past due or delinquent on any debts, including your existing mortgage.
- Get your Loan Estimate. If the lender pre-approves you, you’ll get an official Loan Estimate showing the interest rate, fees, and length of the mortgage the lender is willing to offer you.
- Compare loan offers. Compare your Loan Estimates from each lender who pre-approved your application. Decide which offer best addresses the reason you’re refinancing (for example, lowering your monthly payment). Then, let that lender know you’d like to proceed. You can also apply with more lenders if you don’t like the offers you receive.
- Go through underwriting. After choosing an offer, the lender’s underwriter will verify the information from your application and possibly ask for additional details and documents. If your loan requires it, an appraiser will verify that the home is worth the amount you’re asking to borrow. A title company will make sure no one else (like a contractor or another lender) has a claim against your home.
- Close on your loan. Finally, you’ll review and sign your Closing Disclosure and pay for any closing costs you aren’t financing through your new loan. Your lender will pay off your existing loan and you’ll become responsible for your new loan.