Refinancing a mortgage can be expensive. On average, homeowners can expect to pay 2% to 3% of the loan amount in closing costs.
Under the guidance of the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac have recently rolled out new low-income refinance options.
Fannie Mae’s RefiNow and Freddie Mac’s Refi Possible programs aim to make the refinance process more affordable for low- or moderate-income homeowners.
If you’re a low- to moderate-income homeowner with a mortgage backed by Fannie Mae or Freddie Mac, these programs might be right for you.
What is RefiNow?
RefiNow is Fannie Mae’s low-income refinance option with flexibilities aimed at making it easier and less expensive for homeowners to reduce their monthly housing costs by taking advantage of today’s historically low interest rates.
This affordable program offers features that help to address some of the barriers to refinancing and is a great option for creditworthy borrowers who may not have previously qualified.
For those who qualify, homeowners can expect to see their monthly payment reduced by at least $50 and their interest rate lowered by 0.50% or more.
Fannie Mae will also provide a $500 credit for out-of-pocket appraisal expenses and waive the 50 basis point up-front adverse market refinance fee that Fannie Mae otherwise charges to lenders on balances at or below $300,000.
To qualify for Fannie Mae’s RefiNow program, homeowners must have:
- A Fannie Mae-owned mortgage secured by a 1-unit, principal residence;
- Current income at or below 80% of the area median income;
- No missed payments on their current mortgage loan in the past six months, and no more than one missed payment in the past 12 months; and
- A mortgage with a loan-to-value (LTV) ratio up to 97%, a debt-to-income (DTI) ratio of 65% or less, and a minimum credit score of 620
RefiNow has been available for qualifying homeowners with Fannie Mae-owned mortgages since June 5, with changes made last month. On Oct. 20, Fannie Mae announced changes to expand the terms of RefiNow, allowing more qualifying homeowners to access the benefits of refinancing their mortgage.
Updates include changes to borrower income limits, monthly savings, financing of closing costs, and loan seasoning. Read Lender Letter (LL-2021-10) for more information on these changes.
What is Refi Possible?
Freddie Mac’s Refi Possible program offers more options and newly expanded flexibilities for low- and moderate-income borrowers to consider refinancing their current loans and save on their monthly mortgage payments.
Refi Possible focuses on those who have not taken advantage of today’s historically low interest rates and want to refinance into a more sustainable mortgage that promotes long-term homeownership success.
With Refi Possible, qualified homeowners are guaranteed an interest rate reduction of at least 50 basis points (0.5%) and a $500 appraisal credit if the transaction requires a new appraisal.
Qualifications for Freddie Mac’s Refi Possible program include:
- A First Lien, Freddie Mac-owned conventional mortgage, in whole or in part, or securitized by Freddie Mac and a 1-unit primary residence;
- Borrower income at or below 80% of the area median income;
- No missed payments on their current mortgage loan in the past six months, and no more than one missed payment in the past 12 months; and
- A mortgage with a loan-to-value (LTV) ratio up to 97%, a debt-to-income (DTI) ratio of 65% or less, and a minimum credit score of 620
Refi Possible has been available for qualifying homebuyers since Aug. 30, with changes made last month. On Oct. 20, Freddie Mac announced updates that will allow more borrowers to take advantage of the current low interest rate market.
The expanded eligibility of the Refi Possible program includes changes to borrower income limits, monthly savings, financing of closing costs, and loan seasoning. Read Enhancements to Freddie Mac Refi Possible (Bulletin 2021-33) for more information on these changes.
RefiNow and Refi Possible allow qualified homeowners to take advantage of today’s low interest rates. By offering guaranteed rate cuts, reduced monthly payments, and waived fees, the savings could be significant.
By reducing your monthly mortgage payment, you can free up your budget to pay off debts, cover day-to-day expenses, and/or investment purposes.
If you’re a low- to moderate-income borrower looking to refinance, now is the time. Today’s historically low mortgage rates won’t last forever.
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