If you live in a rural area, getting a mortgage through the U.S. Department of Agriculture could be a good way to save money on your home purchase. Qualifying buyers can get a USDA loan without having to put any money down. The Department of Agriculture is making these loans even more affordable for existing borrowers by lowering the cost of refinancing. If you bought your home through the USDA program, hereâs what you need to know about its streamline refinance program.
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As of June 2, 2016, any homeowner with a direct USDA loan or a USDA loan guarantee could be eligible to take advantage of the USDAâs Streamline Refinance Program. Since 2012, the USDA has been testing out new refinancing rules on borrowers in certain states.
All USDA loans are subject to underwriting guidelines. But homeowners who have made at least 12 consecutive, on-time payments over the past year donât have to undergo a credit check, secure an appraisal or be subject to a debt-to-income calculation (when refinancing for a 30-year term).
According to the Department of Agricultureâs estimates, the typical homeowner should expect to save approximately $150 a month once they refinance through the streamline program. Over the course of a year, that can add up to $1,800 in savings.
Related Article: What Is a Streamline Refinance?
Should You Refinance Your Mortgage?
Just from looking at the numbers, you can see that homeowners can save money by refinancing. In the pilot program, some homeowners who refinanced were saving as much as $600 a month. That kind of reduction in your monthly mortgage payment could have a huge impact on your monthly budget.
But refinancing doesnât make sense for everyone. If youâve already paid down a substantial amount of interest on your home, refinancing may not affect your monthly payment that much. And keep in mind that not everyone can qualify for a refinance. You may run into issues if youâve missed a payment in the past year, for example.
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Also, itâs important to remember that refinancing an existing loan into a new USDA loan doesnât eliminate the private mortgage insurance premiums youâll have to pay. USDA loans come with an upfront fee and a monthly premium, both of which are rolled into the loan. Theyâre added on to your monthly payment, so itâs a good idea to run the numbers to see how refinancing your loan might affect your payments.
The Bottom Line
The USDAâs new refinance guidelines are designed to benefit lower- and middle-income homebuyers with high interest rates. While these changes might offer some homeowners the chance to save money, itâs best to consider the financial implications of refinancing before pulling the trigger.
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