Can You Refinance a USDA Loan?

Yes, you can refinance a USDA loan. Refinancing can be an excellent opportunity to lower your interest rate, reduce your monthly payment, or adjust your loan term. USDA loans are a great option for low- to middle-income families, offering benefits like no down payment and lenient lending requirements. If you’re wondering whether refinancing your USDA loan is right for you, this guide will walk you through your options and the steps involved.

Can You Refinance a USDA Loan?

If interest rates have dropped since you first took out your mortgage, you might be considering refinancing your USDA loan to reduce your monthly payments or adjust your loan terms. Fortunately, USDA loans can be refinanced. Here’s a look at how USDA loan interest rates are trending:

How we source rates and rate trends

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Rate data in the charts and tables above comes from RateUpdate.com. The displayed rates come from multiple providers and represent market averages. Your mortgage rate will differ based on individual factors like your credit score as well as differing loan types and terms offered by lenders.

You have two main paths: refinancing through the USDA program itself, or transitioning to a different loan type such as a conventional or FHA loan.

As with any refinance, certain requirements must be met, including:

• Maintaining an acceptable credit score
• Having sufficient equity, if required by the refinance type
• Being current on your existing mortgage payments

The USDA refinance program has its own set of guidelines, typically focused on ensuring affordability for eligible borrowers. Exploring your options and understanding your goals — whether staying with the USDA program or switching to another loan type — will help you make the best financial decision.

Types of USDA Refinances

Before starting the refinance process, it’s important to understand which type of USDA refinance fits your situation. There are three options available.

USDA Streamlined-Assist Refinance

The USDA Streamlined-Assist refinance is designed to speed up the process. You won’t need to go through the credit approval process again — your lender won’t check your credit score, won’t evaluate your debt-to-income ratio, and a late payment on another bill won’t affect your approval odds. There’s also no appraisal required, so you can refinance even if you have little equity in the home.

Requirements for a USDA Streamlined-Assist refinance include:

• Your new monthly mortgage payment must be at least $50 lower than your current payment.
• You must have made 12 consecutive on-time mortgage payments before applying.
• Closing costs and the upfront USDA guaranteed fee can be rolled into the loan balance.
• Borrowers can only be removed from the loan if they have passed away, though borrowers can be added during the refinance.
• No appraisal is required unless the Direct Loan borrower receives a subsidy.
• The home must remain the borrower’s primary residence.

USDA Streamlined Refinance

The USDA Streamlined refinance is similar to the Streamlined-Assist option — no appraisal is required — but you will need to go through a credit and income check.

Requirements for a USDA Streamlined refinance include:

• You must meet the USDA’s credit requirements.
• Your household income must fall within USDA income limits.
• You must have been current on your mortgage payments for the past 180 days.
• You must have held the previous mortgage for at least 12 months.
• No appraisal is required unless the Direct Loan borrower receives a subsidy.
• Closing costs and the upfront USDA guaranteed fee can be rolled into the loan balance.
• The new loan amount cannot exceed the original loan amount.
• The home must remain the borrower’s primary residence.
• Borrowers can be added or removed as long as one original borrower remains on the loan.

USDA Non-Streamlined Refinance

The USDA Non-Streamlined refinance involves a full approval process — credit check, income verification, and a home appraisal — so it takes longer than the streamlined options. However, it removes the requirement for at least a $50 reduction in your monthly payment.

Requirements for a USDA Non-Streamlined refinance include:

• You must meet the USDA’s credit and income requirements.
• You must have held your current mortgage for at least 12 months.
• You must have been current on your mortgage payments for the past 180 days.
• A home appraisal is required.
• Borrowers can be added or removed, but one original borrower must remain on the loan.
• The home must be your primary residence.
• Closing costs and the upfront guarantee fee can be financed into the loan.

Pros and Cons of Refinancing With the USDA Loan Program

Pros

• Closing costs and upfront guarantee fees can be rolled into the loan balance.
• The Streamlined-Assist option lets you skip the credit approval process entirely.
• No appraisal is required for Streamlined or Streamlined-Assist refinances.
• You can refinance even if your home has little or no equity.

Cons

• USDA refinancing does not allow you to cash out equity.
• If your income has grown since you took out your original loan, you may no longer qualify under USDA income limits.
• You cannot shorten your loan term — USDA loans are only available in 30-year terms.

Refinancing Out of a USDA Loan

USDA loans offer unique benefits, but there are scenarios where transitioning to a different loan type makes more sense. Here are the primary options for refinancing out of a USDA loan.

Conventional Loan Refinance

Refinancing into a conventional loan can be an attractive option if you’ve built up sufficient equity. You can eliminate USDA’s upfront and annual guarantee fees, and borrowers with at least 20% equity can avoid private mortgage insurance (PMI) altogether.

What to Consider: Conventional loans typically require higher credit scores and a more favorable debt-to-income ratio than USDA loans. Refi.com requires a minimum credit score of 620 for a conventional rate-and-term refinance.

FHA Loan Refinance

If you don’t meet conventional loan requirements, an FHA refinance may be a viable alternative. FHA loans have more flexible credit requirements and allow refinancing with limited equity.

What to Consider: FHA loans require both an upfront and ongoing mortgage insurance premium (MIP), which may offset some of the savings. Refi.com requires a minimum credit score of 620 for an FHA rate-and-term refinance.

Cash-Out Refinance

If you have significant equity in your home and want to access cash for home improvements, debt consolidation, or other financial goals, a cash-out refinance may be worth exploring. You can use a conventional or FHA cash-out refinance for this purpose.

What to Consider: Cash-out refinances often carry higher interest rates, and you’ll need sufficient equity to qualify.

The Bottom Line

If interest rates have fallen since you took out your USDA loan, refinancing could lower your monthly payment — and it’s possible even if you have little equity in your home. Whether you stay within the USDA program or transition to a conventional or FHA loan, there are options worth exploring.

Ready to see what refinancing could do for your monthly payment? Start your refinance application with Refi.com today.