You must have a current USDA mortgage loan to streamline refinance to a new USDA mortgage loan in Kentucky.
Streamline means you don't have to do a lot of things usually required for a regular mortgage transaction, and is is faster than with most types of refinances. You usually don't need to get an appraisal, and in some cases, you don't even need to show your credit score or debt-to-income ratio, income documents, like paystubs, bank statements, tax returns etc.
You have two options in regards to a streamline refinance: your USDA refinance, you have two options: a USDA streamline refinance and USDA streamlined assist refinance.
They are both tools for refinancing from one USDA mortgage into a new one, and in most cases, neither requires an appraisal. But there are some key differences between the two.
You can do either type of refinance if you have a USDA direct loan (one straight from the USDA) or a USDA guaranteed loan (one you got from a private lender that's backed by the USDA).
You shouldn't need to get a new appraisal with either refinance, unless you have a direct loan and have collected a payment subsidy.
With a USDA streamline refinance, you need to show the lender your credit score and debt-to-income ratio to qualify. You can add or remove someone's name on the mortgage.
A USDA streamlined assist refinance does not require you to show your credit score or DTI ratio. You can add someone's name to the mortgage, but you can only remove a name if the person has died.
Your choice between the two will come down to your situation. For example, you might prefer a USDA streamline refinance if your credit score has improved since you got your initial mortgage, because a better score can land you a lower interest rate.
As these two types of refinances work a little differently, each one has its own rules about who is eligible.
How to qualify for a Kentucky USDA streamline refinance
You should already have a USDA mortgage, either a direct or guaranteed loan. You can't use a USDA streamline refinance to refinance from another type of mortgage into a USDA loan like FHA, VA, Conventional.
Current on payments. You must have made all mortgage payments on time for at least the last 180 days.
Time restraints. A minimum 12 months should have passed since you closed on your original USDA mortgage.
Credit score and debt-to-income ratio.
You must show your credit score and DTI ratio. For a USDA mortgage, you'll likely need a 640 score and DTI ratio of 41% or lower.No cash out. You can't use a USDA streamline refinance to receive cash. Unlike other types of mortgages, USDA loans don't have a cash-out refinance option.
USDA streamlined assist refinanceHave a USDA mortgage. You should already have a USDA direct or guaranteed loan. A USDA streamlined assist refinance won't refinance another type of mortgage into a USDA loan.
Current on payments. You need to have made all mortgage payments on time for at least the last 12 months.
Tangible financial benefit. The USDA requires a streamlined assist refinance to put you in a better financial position than your initial mortgage. Your principal, interest, taxes, and insurance payments must be at least $50 less per month.
No cash out. You can't refinance to receive cash. Unlike other types of mortgages, the USDA doesn't have a cash-out refinance option.
Should you streamline your refinance?
As with any big financial decision, there are tradeoffs to streamlining your refinance. Think about the following factors before making your decision:
Lower rate. The USDA requires either type of streamline refinance to lock in a lower rate than you paid on your original mortgage. Landing a better rate could save you thousands (or tens of thousands) over the years.
Save money. If you choose a USDA streamlined assist refinance, you must have a "tangible benefit," meaning your monthly payments should be at least $50 lower.
No appraisal. In most cases, you don't need an appraisal with either streamline option. This will save you both time and money.
Only one term option. You can only refinance into a 30-year fixed-rate mortgage. Let's say you have 15 years left on your initial mortgage, and you refinance into a 30-year term. You'll have to pay your mortgage for 15 extra years. Even if you get a lower rate, paying for longer could ultimately cost you more. You do have the option to pay off your mortgage early, though.
Closing costs. As with any type of mortgage, you have to pay closing costs all over again when you refinance. This includes a 1% guarantee fee that comes with all USDA mortgages.
No cash-out options. If you've gained equity in your home since buying it, you may want to tap into that equity by doing a cash-out refinance. The USDA doesn't offer any cash-out refinances, though.
Other options for refinancing your USDA mortgage
Maybe you want to refinance your USDA mortgage, but you don't know that streamlining is the best move. You have a few other options.
Non-streamlined USDA refinance
You can refinance from your current USDA mortgage into another without streamlining the process. This way, you'll go through an appraisal and show your credit score and debt-to-income ratio.
This could be a good option if your home has gained value since you bought it. A new appraisal would show that you have more equity in your home, which could land you a better rate.