Quick Summary
- You can refinance your USDA-guaranteed loan into any other loan type, including conventional, FHA, or VA.
- A USDA loan has a 12-month waiting period/seasoning requirement.
- Most refinancing schemes require a credit score of 620-640 and 180 days of on-time payments.
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 or when to begin their application, so they often miss out on this fantastic opportunity.
If you want to know if you can refinance your current USDA loan, keep reading because we’ll explain how to meet this loan’s refinancing requirements, the best loan type to refinance into, and the benefits you can get from your decision today.
Is It Possible To Refinance A USDA Loan To A Conventional Loan?
Because conventional loans are not backed by the government like USDA, FHA, and VA loans, they have entirely different mortgage guidelines. However, if you meet the refinancing requirements, you can still convert your USDA loan to a conventional loan.
Refinancing into a conventional loan is an excellent option to shorten the duration of your loan, lower your gross monthly payments, and even eliminate USDA mortgage insurance. It’s crucial to note that this form of loan refinancing does not allow cash-out on home equity, so if that’s a big motivator for you, you might want to look into other choices.
Applicants must meet the following requirements in order to be considered:
- A credit score of 620 or higher is required.
- Comply with the debt-to-income ratio standards of a conventional loan.
- To establish your current home equity, your residence must undergo and pass a new appraisal
- At the time of application, your home must have at least 3% equity.
Is it possible to refinance my conventional loan into a USDA loan?
If you wish to use the USDA loan refinancing program, you must already be eligible and have a USDA Guaranteed or 502 Direct house loan. This means that homeowners who have a non-USDA mortgage, such as a conventional mortgage, cannot refinance into a USDA loan.
When Can a USDA Loan Be Refinanced?
A USDA loan requires about 12 months of seasoning. This means that you should wait a full year after closing on the house before applying to have the home loan refinanced.
When Can You Refinance a USDA Loan?
After determining your eligibility, you can refinance a USDA loan. You can refinance your current loan to get lower rates after passing the eligibility test and having owned it for up to a year.
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 to Be Aware Of
To ensure that your application is granted, you must have satisfied the following requirements to be able to refinance your USDA loan:
- The loan must be a 30-year loan unless you’re planning on refinancing to a conventional loan.
- You must have a credit score above 620 (that varies if you’re on a construction loan).
- The new loan has to have a monthly rate that is lower than what you’re originally paying.
- You must have been an occupant of your residence for at least a year.
How to Refinance a USDA Loan for a Better Mortgage
Refinancing your current USDA loan shouldn’t be a stressful process, here are 5 steps you should take:
- Check your eligibility and future loan requirements: You must guarantee that you have had your previous loan for a sufficient period of time and that your payment history qualifies you for refinancing.
- Scout for lenders: Once you’ve checked your USDA eligibility, Go online and look for the best USDA loan refinancing lenders. You can create a spreadsheet and arrange them in the order of your preference.
- Apply to multiple lenders: After you’ve contacted several lenders, narrow your list and request rates from them.
- Compare rates and options: Compare all of the estimates you receive, and once they have all submitted their final bids, choose the bid that you believe will be best for your property in the long run.
- Apply for a refinancing loan: When you’re done comparing costs the next step is to find and apply for your next loan. Because your current loan is a USDA loan, you can refinance it into any conventional, FHA, or VA loan. Choose whatever best meets your needs.
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.
For the time being, the only way to convert an existing loan into a USDA loan is if your current home mortgage is already financed by a USDA loan and you’re willing to switch to a different variation.
Can You Refinance Out Of a USDA Loan?
Yes, it is possible to refinance out of almost any loan type, including USDA loans. There are three options available to you:
- Streamlined refinance: This USDA home loan refinance allows borrowers to roll their closing costs and upfront guarantee fee into the loan. This means there are no out-of-pocket expenses during the application process. You can add or remove borrowers, and unless you have a direct USDA loan, there are no appraisal fees. It does, however, necessitate a credit check, and you must obtain a new loan with a rate that is at least $50 lower than your original monthly loan payment.
- Streamlined-assist refinance: Streamlined-assist programs are the most difficult to qualify for, but they offer the same no-money-down and no-appraisal terms as regular streamline refinance options. The only difference is that the borrower must be current on their existing loan for at least 12 months, but no credit check is required.
- Non-streamlined refinance: This type of refinance always necessitates an appraisal before you can qualify. It is a traditional method that necessitates a credit check and an examination of the borrower’s entire income.
USDA Mortgage Refinance Guidelines
Each USDA mortgage refinance program has its own set of rules, although there are certain commonalities.
To get accepted for a refinance loan ensure you follow these guidelines:
- The home must be the primary residence of the borrowers.
- Borrowers can be added or removed from the loan as long as there is always one original. The borrower has left.
- Before pursuing a refinance, your existing USDA loan must be paid on time for 180 days in a row.
- The existing mortgage must be at least a year old.
- The income of the household must be within the USDA’s income limit.
- The borrower must have a credit score that meets the USDA’s standards.
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.
Make the Most of Your Home Refinance
If you wish to refinance your current USDA loan for whatever reason, make sure you do your homework before jumping into another mortgage. Speak with different lenders and obtain numerous quotations so you can evaluate your alternatives and select the best offer.
Refinancing has many long-term benefits, and USDA home loans usually have no out-of-pocket costs or credit checks, but the wrong deal could mean paying higher interest rates and a longer payment period in the long run.