Streamline financing can be a great way to lower your interest rate while staying in the same mortgage program. Each of the government-backed programs offers a streamlined program, but the USDA’s program is the newest. The USDA Streamline guidelines are fairly simple to follow and make it very easy to obtain a lower mortgage payment.
USDA Streamline Guidelines about Housing History
The most important factor you must focus on is your housing history. This is how the USDA and the subsequent lender determine your level of risk. You have to show that you responsibly make your mortgage payments. You can demonstrate this by having a solid housing history. In order to qualify for the USDA Streamline Refinance, you cannot have more than one 30-day late payment in the last 12 months on your mortgage.
The lender can verify your housing history by getting a payment history from the current lender. The new lender does not need to pull your credit in order to get your housing history. Because your credit score does not play a role in your ability to secure a USDA Streamline Refinance, there is no reason for the lender to pull your credit. Some lenders will still check your credit to use it as proof your on-time mortgage payments or to ensure that your credit score is above a certain level, but every lender has to be concerned about your mortgage payment history whether or not they decide to evaluate your credit score.
You Must Live in the Property
The USDA program was designed to help low-income families be able to become homeowners. Because of this, the USDA does not offer mortgages for investors. You must live in the property in order to use the loan. This is also true for the Streamline Refinance. You have to prove that you, the borrower, live in the property. There are a few ways to prove your residence:
- Driver’s license with the current address
- Utility bills in your name and at the appropriate address
- Tax returns with the right address
- Property tax records with your name on them
Lower Interest Rate and Payment
Two of the other major USDA Streamline requirements pertain to the interest rate and your monthly payment. The idea behind the program is that you make your payment more affordable, as is the case with any streamline refinance. In the case of the USDA Streamline loan, they require your interest rate to decrease at least 1 percent. This is the threshold that the USDA has come up with to ensure that there is a serious benefit before you refinance.
In addition to the lower interest rate, the USDA requires that your payment decreases at least $50 per month. This is not that hard to do since your interest rate needs to decrease at least 1%; however, there could be reasons your payment does not decrease as much as you thought it would.
The most common reason payments do not decrease as greatly is the amount of the USDA Guarantee Fee that gets charged upfront. You do not have to pay this amount out of pocket; however, it gets rolled into your loan amount. It is 2% of the loan amount, which can add a significant amount to your loan, depending on the outstanding loan balance. Typically, though, the $50 lower payment and 1% interest rate decrease are not hard to achieve.
You Must Refinance into a USDA Loan
The final requirement is an obvious one for the USDA Streamline Refinance. You must refinance into another USDA loan. This means you cannot refinance from a USDA loan to an FHA or conventional loan and use the streamlined process. Refinancing from USDA to USDA is the only option.
The major USDA Streamline guidelines are much simpler than the guidelines for any other refinance. Even though you have to pay the guarantee fee again, you still have many benefits to reap by using the streamline program. If you want to save more money every month or pay more towards your principal than interest, the USDA Streamline Refinance can help you achieve your goals. Talk to a few lenders to see the various interest rates and closing costs offered and then opt for the lender that offers you the best deal on your refinance!