You might be eligible to refinance through USDA if you purchased your home with a Section 502 direct or guaranteed loan. These loans are designed to help those with modest incomes purchase homes in rural areas. USDA allows borrowers to refinance at lower interest rates so they can reduce their monthly mortgage payments.

The following options may be available to those who are looking to refinance their USDA loans -- even if their homes are underwater. Each option requires that the borrower has a Section 502 Guaranteed or Direct Loan, income documentation for each household member, and proof of flood insurance.

Refinance programs are available for properties that were not eligible at the time of origin but have become ineligible. All loans are subject to a 2.5% upfront fee and a 0.4% annual fee.

Streamlined Refinancing

The refinancing option is only available to Guaranteed Loans and does not require an appraisal. The amount of the new loan cannot exceed the amount of the existing loan, plus a guarantee fee equal to 0.5 percent. The accrued interest, closing cost, and lender fees cannot be rolled into the new loan.

Lenders will review your credit report. Borrowers with poor credit will need to have a credit waiver. They will also require a debt/income ratio between 29/41. The lender will prefer that your housing costs do not exceed 29 percent of your monthly income and that your total housing expenses plus any other debt payments are under 41 percent.

Non-Streamlined Financing

For Section 502 Guaranteed or Direct Loans, the non-streamlined program requires an appraisal. If the borrower has sufficient equity in the home, the interest, closing costs, and guarantee fee of 0.5% of the loan amount can all be incorporated into the loan. This is determined by an appraisal. The appraiser will determine the fair market value of your home as the maximum loan amount.

Lenders will check your credit report. Borrowers with poor credit will need to sign a credit waiver. They will also require a ratio of 29/41 for debt-to-income.

Pilot Program For Rural Refinance

Only a few states offer this program. It is not available to those who have Section 502 Direct Loans or Guaranteed Loans. An appraisal is not required if you're refinancing an existing guaranteed loan. However, an appraisal will be necessary if you're refinancing Section 502. The direct loan has been subsidized.

The loan can include the closing costs, interest, guarantee fee, interest, and interest at closing, as well as the guarantee fee of 0.5 percent of the loan amount. Lenders can also require the borrower to pay an origination fee or a commission of not more than 1% of the loan amount.

Only the lender needs to confirm that you have made your mortgage payments for the last 12 months. A credit report can be run to verify that the borrower has made the last 12 months of mortgage payments. There are no debt-to-income requirements for the pilot program. The new interest rate will be at least 1 percent lower than the current rate, and the loan will last for 30 years.