(As Of December 7, 2011 USDA Refinance Guidelines Have Changed!)
You can refinance your USDA mortgage loan under the following conditions.
- You currently have a USDA loan. You can not refinance another type of loan into a USDA Loan
- You dont make more than 80% of the median income for your area as when you qualified for the loan originally. Click to see the USDA income limits for Maryland
- Your house appraises for the new loan amount you can roll in the 1.5% up front mortgage insurance
- Your house must not be in any need of repairs as with the original appraisal i.e. missing fixtures, unpainted drywall, uncovered floors etc.
- You can only refinance into another 30 year loan. USDA does not offer 10 year or ARM’s.
- Your debt to income ratios must qualify for the new payment with the monthly and up-front mortgage insurance
- You must live in the house as your primary residence
- You have a minimum 620 credit score
- You are current on your mortgage
- You have no more than 1 late mortgage payment in the past 12 months
- *Other restrictions and guidelines may apply. Final approval and underwriting decisions are made by each individual lender
USDA Refinance Loan Amount
One thing to keep in mind when considering refinancing your USDA Mortgage is that your house must appraise for the total loan amount which before October 1st 2011 was an additional 3.5% on top of the purchase price. As an example a $200,000 loan previously had a funding fee of $7,253.89 bringing the total needed to refinance to $207,253.00 minus any principle that has been paid down.
USDA Refinance Closing Costs
This makes is tough for anyone who recently got a USDA loan because housing prices are not typically moving up very fast. Another thing to consider is the closing costs. There are several options that can help pay for them however in order to get the lowest possible interest rate they have to be paid for up front or rolled into the loan. Closing costs can range from $0 to over $6,000 depending on multiple factors. A $200k USDA loan that closed 24 months ago will only have paid the principle down about 6k not even covering the up front MIP paid on the loan.
USDA Refinance Mortgage Insurance
As of December 7, 2011 there is a 1.5% up-front MIP and a .3% annual monthly mortgage insurance premium on all USDA Refinances. The up-front MIP can be rolled into the loan so you are actually borrowing 101.5% of the appraised value of your home.
USDA Refinance New Payment Breakdown
- Lets first assume that the closing costs are rolled into the interest rate or are being paid outside the loan (as opposed to rolling in the closing costs.)
- You obtained your USDA loan before October 1, 2011.
- You currently owe exactly $200,000
- Your current interest rate on your USDA Loan is 5%
- Currently USDA Refinance Interest Rates are 4%
Typically you want to consider refinancing if the interest rates are 1% or more lower than your current interest rate.
Old Payment $1,073.64 - (Principle and Interest Only) At $200,000 and a 5% interest
New Payment $1,019.90 – (Principle and Interest Only) At $203,000 with 4% interest and .3% annual monthly mortgage insurance
Difference $53.74 = $644.88 per year
Years to recoup the $3,000 in added principle 4.65 years
This is of course not including the closing costs which in most cases are around $5,000. The bottom line is a USDA Refinance is not as profitable as it once was however there are many things to consider. Recently rates have dipped below 4% and as I mentioned earlier you can refinance without paying any closing costs. We do not charge any application or consulting fees in other words Its Still FREE To Talk! If you are considering a USDA Refinance please do not hesitate to call me at 443-624-9398 or fill out a secure application on my website.