Can You Refinance a USDA Loan?
It’s not uncommon to find yourself in a position where you need to refinance your mortgage. But what if you have a USDA loan? Will it be possible to refinance it after all? Let’s answer this question so that you are aware of the potential opportunities.
What is a USDA loan?
A USDA loan (U.S. Department of Agriculture loan) is a loan that offers an opportunity to purchase a home in an eligible rural area. This loan is also known as the Section 502 loan and it’s designed to give eligible people an option to purchase a home with a low-interest rate.
Is it Possible to Refinance a USDA Loan?
Yes, it is possible to refinance a USDA loan. In fact, it can be done through the same program to get the same low-interest rate. Here are the steps you need to take to properly refinance your USDA loan:
- Apply for a New Loan: You’ll need to take a look at your current loan and apply for a new one to refinance. There are a few eligibility requirements that you’ll need to meet.
- Identify Your Goals: Once you’ve applied for a new loan, you’ll need to identify your goals. Ask yourself what the primary reason for refinancing is and how the refinance will affect your financial situation.
- Compare Interest Rates: You’ll want to compare interest rates to make sure you’re getting the best deal. Some lenders offer lower rates, so you’ll want to do your research and shop around to get the best rate.
- Gather Documentation: Once you’re ready to proceed with the refinance process, you’ll need to gather all the necessary documentation. This includes financial statements, proof of income, and other paperwork.
- Submit Your Application: Once you’ve gathered all the paperwork and found the best interest rate, you’ll need to submit your application and wait for a response. Typically, it takes several weeks to get an answer.
Benefits of Refinancing a USDA Loan
Refinancing a USDA loan can offer several benefits, including:
- Lower interest rates that can save you money over the life of the loan
- Smaller monthly payments that fit your budget
- An opportunity to consolidate existing debts and lower your overall debt
- An opportunity to build equity faster
Conclusion
It’s definitely possible to refinance a USDA loan. This can provide some welcome relief from high-interest rates and give you an opportunity to lower your monthly payments. However, you should remember that the process of refinancing a USDA loan can take several weeks, so you should plan ahead to get the best results.
What credit score do you need to refinance a USDA loan?
The minimum credit score to be eligible for a USDA refinance loan typically ranges from 600 to 640, depending on the lender.
Additionally, you must have a good payment history on your current USDA loan and your income must support the new loan payment.
What are the requirements for a USDA loan refinance?
1. You must have an existing USDA loan.
2. You must be current on your payments and have an on-time payment history for the last 12 months.
3. The property must be located in an eligible USDA rural area.
4. Your income must not exceed certain limits set by the USDA, based on your location.
5. You must have a valid credit history and acceptable debt-to-income ratio.
6. You must meet specific credit score requirements.
7. You must be a U.S. citizen or eligible non-citizen.
8. You must have a decent debt-to-income ratio; up to 45% is possible with compensating factors.
9. You must have sufficient income to support the new loan payment.