The USDA Home Refinance Pilot Program

by on October 12, 2012

The USDA Refinance Pilot Program was introduced to enable rural home owners the opportunity to take advantage of the record low interest rates that are available today.

Homeowners eligible for a USDA refinance must meet the following criteria:

  • They must have made their mortgage payments on time for the past 12 months
  • They must live in one of the states that are currently participating in the USDA refinance program
  • The interest rate on their mortgages must be 100 basis points above the refinance rate
  • Their current loan must be a USDA Rural Development 502 loan that is either direct or guaranteed

States Participating in the Program

The states where people can participate in the USDA streamline refinance program are Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oregon, Rhode Island, North Carolina and Tennessee.

The Advantages of the USDA Refinance Program

The USDA streamline refinance does not require that the house be appraised or inspected. The homeowners will not have to submit to a credit check. The loan will have a 30-year term at a fixed rate that will decrease the homeowners’ current mortgage rates by at least 100 basis points. They will need to pay a fee of 1.5 percent, but those who cannot pay this amount up front can add this amount to the balance of the loan.  One possible disadvantage may be that homeowners cannot take advantage of any equity they have in the home. With the USDA refinance, homeowners may not take cash out. Also, if homeowners are subject to the SFH direct loan subsidy recapture due, they cannot add this amount to their new principle loan amounts.

In the event that homeowners have recapture due, they are going to need to pay this amount before they can participate in the program. They may be able to subordinate this amount by contacting the Centralized Servicing Center (CSC) and asking that this be done.

How the USDA Refinance Program Benefits the Community

The USDA created this new program in order to help homeowners who have paid their bills on time and have good credit histories remain in their homes with lower monthly payments. This benefits the larger community because fewer people will be forced into foreclosure, and property values can begin to stabilize.  Furthermore, as people save money on their monthly mortgage payments, they have more money with which to pay their bills. They also have more money to put into the local economy.

Applying for the USDA Streamline Refinance

Homeowners wishing to apply for this loan can do so by contacting an approved USDA lender and let them know they would like to refinance through the USDA.

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Spencer is mortgage insider and expert in home finance.

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