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Can You Refinance With a USDA Loan? Here What You Need to Know

Quick Summary

  • You can refinance your USDA-guaranteed loan into any other loan type; Conventional, FHA, or VA.
  • The waiting period/seasoning requirement for a USDA loan is 12 months.
  • Most refinancing programs require a credit score of 620-640 and an on-time payment of 180 consecutive days.

Refinancing your USDA home loan can save you money on your mortgage and get you a better deal on your interest rate. The problem is, that most people don’t know how and when to start their application and they usually pass up on this great opportunity.

If you want to know if you can refinance your existing USDA loan, stick around because in this article we’ll explain how you can meet this loan’s refinancing requirements, the best loan type to refinance into, and the benefits you can get from your decision today.

Can You Refinance a USDA Loan to a Conventional Loan?

Conventional loans aren’t government-backed like USDA, FHA, and VA loans so they have entirely different mortgage guidelines. However, it’s still possible to refinance your USDA loan into a conventional one if you meet the refinancing requirements.

Refinancing into a conventional loan is a great way to shorten your loan term, reduce the gross monthly payments and even remove USDA mortgage insurance. It’s important to mention that this type of loan refinancing does not allow cash-out on home equity so if that’s a major driving factor for you, you might want to consider other options.
To qualify, applicants must have:

  • A credit score of at least 620 or above.
  • Meet the debt-to-income requirements of a conventional loan.
  • Your house must undergo and pass a new appraisal to determine your current home equity.
  • Your home must have at least a 3% equity on it at the time of application.

Can I Refinance My Conventional Loan To a USDA Loan?

If you want to make use of the USDA loan refinancing program, it is essential that you are already eligible and presently on a USDA Guaranteed or 502 Direct home loan. This means homeowners with a non-USDA mortgage like a conventional mortgage cannot refinance their current home loans into a USDA loan type.

How Soon Can You Refinance a USDA Loan?

how soon can you refinance a usda loan

The seasoning requirement of a USDA loan is about 12 months. This implies a whole year should have passed after closing on the house before you take any step towards applying to get the home loan refinanced.

When Can You Refinance a USDA Loan?

You can refinance a USDA loan after checking your eligibility. Once you’ve passed the eligibility test and have owned the mortgage for up to a year, you can request a refinancing of your current loan to get better rates.

You also have to meet the requirements of the loan you aspire to get so it wouldn’t hurt to check those out too.

USDA Loan Refinance Requirements You Should Know

To ensure your application stands a chance of getting approved, you need to have met the following requirements to ensure you can refinance your USDA loan:

  1. The loan must be a 30-year loan unless you’re planning on refinancing to a conventional loan.
  2. You must have a credit score above 620 (that varies if you’re on a construction loan).
  3. The new loan has to have a monthly rate that is lower than what you’re originally paying.
  4. You must have been an occupant of your residence for at least a year.

How To Refinance a USDA Loan and Enjoy a Better Mortgage Deal

Refinancing your current USDA loan shouldn’t be a stressful process, here are 5 steps you should take:

  1. Check your eligibility and future loan requirements: You have to ensure you’ve had your existing loan long enough and that your payment pattern qualifies you as a refinancing candidate.
  2. Scout for lenders: Once you’ve checked your USDA eligibility, go online and search out the best lenders for refinancing USDA loans. You can make a spreadsheet and arrange them in order of specific preference.
  3. Apply to multiple lenders: After you’ve gone through multiple lenders, narrow down your list and request rates from them.
  4. Compare rates and options: Compare all the quotes that you get and once they all send in their final bid, pick the bid that you know will be best for your home long-term.
  5. Apply for a refinancing loan: When you’re done comparing costs the next step is to find and apply for your next loan. Since your existing loan is a USDA type you can refinance it into any one form of Conventional, FHA, or VA loan. Go for whatever suits your needs best.

Can You Refinance an FHA Loan To a USDA Loan?

Even though both FHA and USDA mortgage types are government-approved loans, their requirements and guidelines vary significantly. You can’t refinance an FHA loan to a USDA loan.

As for now, the only way you can convert any existing loan into a USDA loan is if your current home mortgage is already financed by a USDA type of loan and you’re willing to switch to a different variation.

Can You Refinance Out Of a USDA Loan?

can you refinance out of a usda loan

Yes, refinancing out of almost any loan type is possible and USDA is certainly not an exception. There are three options you can pick from:

  1. Streamlined refinance: This type of USDA home loan refinance allows borrowers to roll in their closing costs and upfront guarantee fee. This means there’s no out-of-pocket payment anytime during the application. You can add or remove borrowers and you don’t have to pay extra costs for appraisals unless you have a direct USDA loan. It however requires a credit check and you need to get a rate on the new loan that is at least $50 lower than your original monthly loan payment.
  2. Streamlined-assist refinance: Streamlined-assist programs take the longest to qualify for, they offer the same no out-of-pocket or appraisal terms as regular streamline refinance options. The only difference is that it requires the borrower to be current on their existing loan for at least 12 months but it doesn’t require a credit score check.
  3. Non-streamlined refinance: This refinance type always requires an appraisal before you can qualify. It is a traditional method that requires a credit score check and the borrower’s full income review.

USDA Mortgage Refinance Guidelines

Each USDA mortgage refinance program has it’s guidelines but there are common similarities.

To get accepted for a refinance loan ensure you follow these guidelines:

  • The home must be used as the borrowers’ primary area of residence.
  • You can add or remove borrowers from the loan as long as there’s always one original. borrower left.
  • Your existing USDA loan must be paid on time for 180 consecutive days before requesting a refinance.
  • The current mortgage must be at least 12 months old.
  • The household income must fall within the USDA’s income limit.
  • The borrower must meet the USDA’s credit score requirements.

These guidelines are generic, you should always ask your lender if the refinance program you opt for has any more hidden requirements in addition to the ones mentioned.

Get The Best out Of Refinancing Your Home

For whatever reason you want to refinance your current USDA loan, ensure you do adequate research before you hop on another mortgage. Speak to multiple lenders and generate several quotes so you can compare your options and choose the best deal.

Refinancing has a lot of long-term benefits attached to it and with USDA home loans there are usually no out-of-pocket costs or credit score checks but, the wrong deal could mean paying higher interest rates and a longer period of payment in the long run.