There are a handful of refinance programs available for government-backed loans. FHA streamline refinance aside, these government refinance loans are understandably specific, catering to veterans, rural homeowners and those with fixer-uppers.
If you are a homeowner with an existing VA, USDA or FHA loan, qualifying for a refinance might be relatively easier and more cost-effective as shown by the following government refinance loans.
Refinance and Rehabilitate
The Section 203(k) loan is an all-around, albeit unique, mortgage product from the Federal Housing Administration. It combines purchase/refinance and rehabilitation into a single loan.
When you refinance into a 203(k) loan, you finance the repairs to your home, include those costs into the mortgage being refinanced, and obtain a new mortgage, all at the same time.
There are two types of 203(k) loan depending on the extent of the repairs needed to be made and financed. There’s the limited 203(k) mortgage that allows up to $35,000 in rehabilitation costs to be added to the mortgage. For more extensive repairs, the standard 203(k) loan is used because it has no limits and requires less paperwork.
Eligibility requirements for FHA’s standard mortgage products, which target low and mid-income borrowers, are likely to apply to Section 203(k) loans, although lenders could still vary in their requirements and fees.
Streamlined-Assisted Refinance in Rural Areas
Last year, the U.S. Department of Agriculture through the Rural Housing Service announced the addition of a “streamlined-assist” option to its existing refinance programs for homeowners in rural areas per USDA standards.
What’s beneficial about this new refinancing option is its no appraisal, no credit report, and no debt-to-income calculation policy for those who are current on their mortgages for the past 12 months before the refinance application.
However, homeowners with a Section 502 direct loan who are receiving a subsidy are required to obtain an appraisal.
You must also show a net tangible benefit by way of a $50 or more reduction in your monthly PITI (principal, interest, taxes and insurance, including the annual USDA guarantee fee) as opposed to your current monthly PITI.
The streamlined-assist is the result of a rural refinance pilot program launched in 2012 in certain states. It became a permanent program feature of the USDA refinance roster in 2016.
Refinance for Veterans
Qualified veterans, service members, and certain surviving spouses can apply for an Interest Rate Reduction Refinance Loan offered for U.S. Department of Veterans Affairs-backed loans.
The IRRRL is used to lower one’s rate and payment with minimal underwriting, i.e. no credit and appraisal required. It also allows for no out-of-pocket closing costs as they can be financed into the loan. You are not to receive any cash-out proceeds from this refinance, however.
This refi loan also does not require that you presently occupy the property, as long as you certify that you previously occupied the home. The IRRRL may not result in a lower interest rate if you switch refinance to a fixed-rate mortgage.
Stay tuned for updates on government refinance loans.