Low-income borrowers may soon be able to save hundreds of dollars a month on their mortgage through a new government refinancing initiative being introduced soon. FHFA introduces new refinance options via Fannie Mae and Freddie Mac, both announced their own versions of the initiative, which will be available to homeowners. The Fannie Mae RefiNow Matrix has the guidelines for this mortgage program.
- Fannie Mae ‘Refi-Now’ ‘Refi-Now’ to be launched on 5th June, 2021.Refi-Now Guidelines
- Freddie Mac 'Refi-Possible' scheme to be launched on August 30, 2021. (Refi-Possible Guidelines)
- Borrowers must meet various eligibility requirements including an income of no more than 80% of the median income for the area.
- Lenders must reduce mortgage payments by at least $50 per month and provide an interest saving of at least half a percentage point.
- Loan must be conventional and owned or securitized by Fannie Mae or Freddie Mac
- 30-year fixed loans with an LTV up to 97%
- Maximum DTI up to 65%
- 640+ FICO
- $500 credit from Fannie Mae/Freddie Mac if an appraisal was obtained
The FHFA announced the new refinancing scheme aimed at helping low-income borrowers get a reduced rate on their mortgage. Initially, they did not provide a start date, but now Fannie Mae and Freddie Mac have made their own announcements about when the program will be available to homeowners.
Fannie Mae ‘RefiNow’ Scheme
The new Fannie Mae ‘RefiNow’ scheme will be launched on the 5th of June and it has the potential to save 2 million homeowners money on their monthly mortgage payments. Fannie Mae has long been dedicated to removing the barriers to home ownership and creating a more stable, fair housing market. Unfortunately, there are many barriers to refinancing that prevent low-income borrowers from refinancing their mortgages. This means that they miss out on potential savings that high-income families take advantage of because they are able to refinance. The new ‘RefiNow’ scheme aims to remove those barriers and give low-income homeowners the opportunity to make the same savings.
Mortgage rates hit all-time lows in 2020, so refinancing activity is at its highest levels since 2003. However, poor credit scores or low home values can prevent low-income homeowners from benefiting from these historically low interest rates and making big savings on their monthly mortgage payments. The ‘adverse market fee’ of $500 that is applicable on refinanced mortgages sold to Fannie Mae and Freddie Mac also acts as another barrier. However, lenders will be forced to waive this fee for any low-income borrowers whose loan is less than $300,000 under the new scheme.
The Fannie Mae RefiNow scheme will help over 2 million homeowners that failed to refinance in 2020 when they could have benefitted from doing so. One of the first steps is to get the payoff calculation for 30 days, and see if you have enough equity to meet guidelines.
Fannie Mae RefiNow General Eligibility Requirements
In order to refinance their mortgage, homeowners must meet a series of eligibility requirements. There will be certain limits on income and homeowners must not earn more than 80% of the median average income for their area. Lenders must use the same methodology that they use when reporting monthly income in loan delivery when determining income eligibility. The income of all borrowers that will sign the note must be taken into consideration.
The borrower must have a FICO credit score of at least 620 to apply and they may not have missed any of their mortgage payments in the last six months, and no more than one in the last 12 months. Their debt to income ratio cannot exceed 65%. If any one of these requirements is missed, the borrower does not qualify for the scheme.
The bullet points below are highlights from Fannie Mae's RefiNows guidelines website.
- Non-occupant borrowers are permitted.
- A maximum LTV, CLTV, and HCLTV ratio of 95% applies to loans underwritten with DU and manually (CLTV ratio may be up to 105% when a Community Seconds® is being subordinated).
- Manually underwritten loans are not subject to the occupying borrower DTI ratio of 43%.
- Maximum DTI ratio
The DTI ratio must be less than or equal to 65%.
Occupancy and Property Type
- The new loan must be secured by a one-unit principal residence.
- All eligible property types are permitted.
- All project review requirements will be waived for properties located in a condo, co-op or PUD, except that the lender must confirm the subject is not a condo or co-op hotel or motel, houseboat, timeshare or segmented ownership.. The lender must confirm appropriate property and flood insurance is obtained.
Eligible Subordinate Financing
- Be a conventional mortgage loan owned or securitized by Fannie Mae.
- Be seasoned at least 12 months but no more than 120 months (from the original note date to new loan note date).
- Not be subject to recourse, repurchase agreement, indemnification, outstanding repurchase demand, or credit enhancement (unless the new loan is also subject to the credit enhancement or it is no longer required).
- Not an existing high LTV refinance loan, DU Refi Plus® loan, or Refi Plus® loan.
Existing loan requirements
There are also specific requirements pertaining to the borrower's existing home loan. They will only be eligible to refinance if the loan is a conventional mortgage owned or securitized by Fannie Mae. Requirements about seasoning (the age of the mortgage) also apply. The mortgage must be at least 12 months old but no more than 120 months (ten years) old.
Recourse loans, meaning those that are backed by collateral from the borrower, are not eligible for the scheme. Repurchase agreement loans, loans subject to indemnification or repurchase demands, are not eligible either. Credit enhancement loans are only applicable if the new loan is also subject to credit enhancement or if it is no longer needed.
Homeowners that currently have a mortgage through an existing Fannie Mae for low-income borrowers, such as the high LTV refinance loan, DU Refi Plus, or the Refi Plus, are not eligible either.
New loan requirements
When determining eligibility, there are also key criteria that the new loan must meet. The new refinance loan must be a fixed-rate loan. It must also have maximum LTV, CLTV, and HCLTV ratios (these are outlined in the Fannie Mae eligibility matrix) . The new loan must be a limited cash-out refinance with closing costs, prepaid items and points lower than $5,000. The cash-out limit must also be $250 or lower. However, excess proceeds may be applied as a curtailment. The loan limits must conform to general loan limits and high-balance loans will not be eligible for the ‘RefiNow’ scheme
The borrowers on the loan need to be the same as the existing loan, in the majority of cases. No borrowers can be added and borrowers can only be removed in a few specific scenarios. If a borrower is deceased, proof of their death must be provided before they can be removed from the new loan. If a borrower can prove that they have made the last 12 months of mortgage payments from their own funds alone, another borrower can be removed.
The adverse market fee that is usually applied must also be waived on any loans under $300,000. If the borrower is not eligible for a waiver, the FHFA requires the lender to provide $500 for an appraisal. This money will be reimbursed at a later date by the government-sponsored enterprises once the loan is sold to them.
Borrower benefits requirements
For a new loan to qualify for the ‘RefiNow’ scheme through Fannie Mae, it must provide certain minimum benefits to the borrower. The monthly payment, including the principal, interest rate, and the mortgage insurance payment, if applicable, must be at least $50 per month lower than the existing mortgage. There must also be a reduction in interest of at least 50 basis points. Unless both of these benefits are provided, the new loan will not be eligible.
How to access the RefiNow scheme
If you are considering a refinance and you think you could get a reduction in your monthly repayment, you will be able to apply from the 5th of June. You can apply for a refinance through our Apply Here button on our homepage and we can connect you to a lender that is eligible to offer these mortgages through the new scheme. Although lenders are not required to participate in the scheme, many of the biggest are.
If you think that a refinance may benefit you, it is best to speak to MortgageQuote.com as we have access to some of the biggest lenders. We can help you navigate the refinancing process and find the best lenders. If you don’t know whether your mortgage is backed by Fannie Mae or not, you can use their lookup tool to find out.
Who will benefit from the RefiNow scheme?
The RefiNow scheme is aimed at low-income borrowers of all kinds. It is estimated that around 2 million homeowners failed to refinance in 2020, even though they could have reduced their mortgage payments if they did. The difficulties that low-income borrowers face when trying to refinance their mortgage will be addressed by the new scheme, meaning that more people can benefit from refinancing in the future.
Freddie Mac RefiPossible Scheme
The Freddie Mac version of the new FHFA refinance scheme will not be available at the same time as the Fannie Mae ‘RefiNow’ scheme. There is not yet a final date but the new scheme, called the RefiPossible scheme, will be available sometime in August. It is estimated that over a million homeowners with a Freddie Mac mortgage could benefit from reduced mortgage payments.
The eligibility requirements for this program are the same as the ‘RefiNow’ scheme for both borrowers and lenders. Again, you will have to check whether you have a Freddie Mac-backed mortgage using their lookup tool.
Freddie Mac RefiPossible General Eligibility Requirements
The bullet points and graph below are from Freddie Mac’s RefiPossible’s guidelines website.
Maximum loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratios
|Property/transaction type||Max LTV/TLTV/ HTLTV ratios|
|1-unit other than Manufactured Homes||97%*|
|Mortgage with a non-occupying Borrower||95%*|
Occupancy and Property Type
- The Refi Possible Mortgage must be secured by a one-unit Primary Residence, such as townhomes, condos or single family homes.
- For Mortgages secured by Condominium Units or Cooperative Share Loans, the Seller is not required to evaluate if the Condominium or Cooperative Project meets the project eligibility requirements, provided that:
- Seller represents and warrants that the project is not located in a Condominium Hotel or a cooperative hotel, houseboat, timeshare or with segmented ownership.
- The project has insurance that meets the applicable insurance requirements of Guide Chapter 4703
The Mortgage being refinanced must:
- Be a First Lien, conventional Mortgage currently owned by Freddie Mac, in whole or in part, or securitized by Freddie Mac
- Be seasoned for at least 12 months and no more than 120 months (i.e., the Note Date of the Mortgage being refinanced must be at least 12 months prior to, but no more than 120 months prior to, the Note Date of the Refi Possible Mortgage)
- A reduction in interest rate of at least 50 basis points, and a reduction in the monthly payment that includes principal, interest, and the mortgage insurance payment (if applicable) of at least $50.00. The new loan must be secured by a one-unit principal residence.
- The Mortgage has not been 30 days delinquent in the most recent six months; and The Mortgage has not been 30 days delinquent more than once in the most recent 12 months, and The Mortgage has not been 60 or more days delinquent in the most recent 12 months.
- A Freddie Mac Relief Refinance Mortgage
- A Freddie Mac Enhanced Relief Refinance® Mortgage
- A Refi Possible Mortgage
- A Mortgage subject to an outstanding repurchase request
- A Mortgage subject to recourse, indemnification, or another credit enhancement other than mortgage insurance (unless the new loan is also subject to credit enhancement or it is no longer required)
What Are Fannie Mae And Freddie Mac Mortgages?
In order to qualify for the ‘RefiNow’ and ‘Refi Possible’ schemes, your mortgage must be backed by Fannie Mae or Freddie Mac, but what does this mean?
Fannie Mae and Freddie Mac are the biggest organizations in what is known as the secondary mortgage market. They are quasi-federally backed mortgage companies created by the government to increase access to home loans and assist low-income borrowers, allowing them to buy homes and access better refinancing options.
Instead of originating their own loans, they buy mortgages from lenders. As a result, homeowners may not know whether their mortgages are backed by Fannie Mae and Freddie Mac or not. The money that lenders get from selling the mortgages can then be used to originate more loans.
The combined efforts of Fannie Mae and Freddie Mac make the market more liquid and increase stability. They also have a dedication to improving the market for low-income borrowers by creating various schemes that remove financial barriers, like the ‘RefiNow’ and ‘Refi Possible,’ programs.
How Does Refinancing Work?
Refinancing a mortgage simply means taking out a new loan to replace the old one. Your new mortgage pays off the old loan, leaving you with a single loan and a new monthly repayment. There are a number of reasons why people decide to refinance their homes. Often, it is to get a better interest rate and reduce their monthly mortgage payment (as is the case with the new refinance schemes). People may also refinance to remove somebody from the mortgage, but this is not likely to be possible with the new refinancing schemes from Fannie Mae and Freddie Mac.
If you plan to refinance your home when the new schemes are available, it is important to know how the process works.
The application process for a refinance is much the same as applying for a loan to buy a property. The lender will need information about your income, assets, debt and credit score to determine whether you qualify for a loan. When low-income borrowers are applying for a refinance mortgage through the ‘RefiNow’ and ‘Refi Possible’ schemes, the lender will need to check that they meet the eligibility requirements. You will be required to provided documentation including:
- Recent pay stubs
- Two most recent W-2s
- Two most recent bank statements
If you want someone else on the mortgage note, they will also need to provide their own documentation if you are applying together. Anybody that is self-employed may also be asked to give more supporting information about their income, such as a profit and loss statement along with 2 years of tax returns, a CPA letter also helps, as it is less predictable and stable than somebody in full employment.
When applying for a refinance mortgage, you do not need to stick with your current lender, this is why it's great to have MortgageQuote.com as your mortgage broker. In fact, many people change so they can get more favorable interest rates and reduce their mortgage. When applying through the refinancing schemes from Fannie Mae and Freddie Mac, the loan will only be eligible if the interest rate is reduced and the monthly payments are lower. It’s best to go through a MortgageQuote.com who can help you through the application and loan process.
Locking your interest rate
All new loans through the refinancing schemes must end up being a fixed-rate. Meaning that the interest rates cannot change once the loan has been closed.
Also, you will also be given the option of locking your interest rate when you first apply, meaning that it cannot go up and the rate is locked in for a certain period of time, and can change during the loan process, including but not limited to such exceptions as if it expires or the loan is turned down. If you are happy with the interest rate when you apply, consider locking it. We can discuss this during the mortgage plan strategy we try to do with borrowers.
In some cases, you are given the option to float the rate. This means that it is not locked and it could increase. It could also decrease, but it is a risk we can discuss when it is best to lock it in, as our goal is to get a favorable rate.
Before getting any home loan, your home needs to be appraised to determine the value. In the case of refinancing through the new scheme, this appraisal will show whether the value of your loan will be lower than $300,000 and you qualify for the adverse market fee to be waived.
As long as the valuation of the home is equal to or greater than the loan amount that you want to refinance, the process can move forward. When preparing for your appraisal, it is important to present the home in the best way possible. This may mean making some repairs, although this can be a challenge for low-income borrowers looking to refinance through the new schemes.
If the valuation comes in lower than the loan amount, you can reconsider the amount you want to refinance, cancel the application altogether or order another appraisal.
Closing the loan
Once the underwriting and appraisal process is completed, MortgageQuote.com will contact you about closing on the loan. We will send you a document called a Closing Disclosure, which outlines all of the final details of the loan. Closing is attended by the title/escrow agent and the borrowers on the loan, make sure to bring 2 forms of ID.
At this point, you will go over the final details, sign the paperwork, and pay any closing costs. The new refinancing schemes specify that the closing costs must be $5,000 or less. You may also be able to roll the closing costs into your loan, so you don’t need to pay any money upfront. This is a good option for low-income borrowers that do not have much cash available to them at short notice.
You are able to apply for a refinance loan with MortgageQuote.com through the ‘RefiNow’ and ‘Refi Possible’ schemes, we try to provide a personalized service when you choose us as your mortgage broker.
What Are The Benefits Of Refinancing?
There could be a lot of benefits to refinancing and a large number of low-income homeowners have missed out in previous years due to financial constraints. Now that the new refinancing schemes have opened up those opportunities, many homeowners wonder what the benefits are and whether it is the right option for them.
Reduced interest rate
Reducing their interest rate is one of the main reasons that people decide to refinance. In recent years, interest rates have hit historic lows, so refinancing is currently at very high levels. Many people have taken advantage of low rates by refinancing and the new FHFA scheme aims to make sure that low-income borrowers are able to benefit too.
Changing the loan term
In some cases, people refinance their mortgage to change the loan term. If they are able to pay a higher monthly payment, they can reduce the amount of interest they pay by shortening the term and paying the loan off faster. However, you may want to discuss the term further with us as the goal should be to lower the monthly payments.
Changing the loan rate type
Refinancing your loan also gives you the opportunity to change the loan type. For example, switching from a variable interest rate to a fixed-rate mortgage. If you are refinancing through the new scheme, the new loan must be a fixed-rate mortgage.
Cash-out your equity
Refinancing can give borrowers an opportunity to borrow more than they currently owe on their existing home loan and then cash-out the difference. This can be a good way to get a fast cash injection, but the new FHFA schemes put limits on this. The new loan cannot have a cash-out value above $250, so it is not an option for low-income borrowers looking to raise large amounts of cash to pay for other expenses.
When Is It A Bad Idea To Refinance?
Although refinancing can have a lot of benefits, there are potential downsides. Any low-income borrowers that are considering the new refinancing schemes must be aware of the reasons to avoid refinancing. We can try to help get you a mortgage quote, and you can decide if it makes sense to refinance.
The break-even period refers to how long it will take before the reduced payments add up to the cost of closing. In some cases, if closing the new loan is expensive, the homeowner will not benefit overall from the reduced monthly payments for a longer time. When applying for a refinance loan, divide the closing costs by the monthly reduction in mortgage payments. This will tell you how many months it takes you to break even.
There is no set figure for a good break-even period and it all depends on your personal situation. You have to ask yourself, how long are you planning on being in the home, or how long before you might refinance again or are there any other situations that may come up? Before deciding whether to go ahead with a refinance, homeowners should always consider their break-even periods and whether it makes financial sense to refinance their loan.
Where the new scheme is concerned, the closing costs cannot be higher than $5,000, so the break-even period is easier to anticipate and manage.
Unaffordable closing costs
High closing costs and high interest rates are some of the common reasons that low-income homeowners avoid refinancing in the first place. Even if they can get a reduction in their monthly payments, they cannot take advantage because of the high closing costs. The new schemes aim to assist with this by forcing lenders to waive certain fees and provide funds for the appraisal. However, unaffordable closing costs can still be a problem.
A solution to this issue for homeowners is to find a loan that allows them to roll closing costs into the loan. A mortgage broker will assist homeowners with finding lenders that offer this option.
Higher long-term costs
Although the monthly payment is reduced, that doesn’t necessarily mean that you will pay less overall. If you have been paying off the loan for a number of years and refinancing means that you extend the term again, your overall costs may end up being higher. It is important to consider this when deciding to refinance or not.
The new loans originated as part of the ‘RefiNow’ and ‘Refi Possible’ schemes designed to help low-income borrowers manage their mortgage and their finances more effectively. As a result, the loans must provide significant benefits to the homeowner, so higher-long term costs are less likely to be a problem.
Adjustable vs fixed-rate loans
Refinancing your fixed-rate mortgage for another fixed loan with a similar interest rate may not necessarily reduce lifetime costs of the loan that much, but it might lower the payment. In some instances, people opt for an adjustable mortgage instead. However, there are risks associated and should be discussed with MortgageQuote.com to see if it makes sense for you to refinance.
All loans taken out through the new refinance schemes must be fixed-rate, and they must provide a minimum reduction in monthly payments for the homeowner, so this should not be a problem.
Although there are some potential downsides to refinancing your mortgage and homeowners should always consider them before making a decision. However, the new ‘RefiNow’ and ‘Refi Possible’ schemes address many of the negatives for low-income borrowers, making it a mortgage program you should consider.
Should You Refinance Through The ‘RefiNow’ or ‘Refi Possible’ Schemes?
Finding the right time to refinance is crucial for homeowners, especially low-income borrowers that want to reduce their monthly payments. Many people wonder whether they should refinance right away or wait for the new schemes to become available. Often, people are concerned about rising interest rates if they wait too long to refinance.
In the case of ‘RefiNow’, there is no need to be concerned on when the program might be available as the scheme is about to start and is available from the 5th of June 2021. The potential reduced interest and monthly payments should be an incentive for low-income borrowers to refinance.
However, if you have a Freddie Mac mortgage, the wait is a little longer. Although August is not too far away, there is still a chance that interest rates could rise in the meantime. If competitive interest rates are available, homeowners may decide to refinance straight away and lock the interest rates. However, the benefits of the scheme far outweigh the risks, so it is worth waiting until the scheme takes effect in August.
Anybody that currently has a mortgage with Fannie Mae or Freddie Mac could benefit from the new FHFA scheme. If you meet the eligibility requirements, speak to a mortgage broker about your options and see if you can get a reduction in your monthly payments by refinancing.
The new Fannie Mac ‘RefiNow’ scheme comes into effect on the 5th of June. It is aimed at low-income borrowers that have previously been unable to access the benefits of refinancing their mortgage. An estimated 2 million homeowners could have reduced their monthly payments last year but failed to refinance. There are a disproportionate number of households that were unable to refinance. The new Fannie Mac scheme is designed to remove barriers and help low-income borrowers reduce their monthly mortgage payments.
To be eligible for a refinance loan through this scheme, borrowers must have an income of 80% of the median average for the area or lower. There are also eligibility requirements on the existing loan and the new loan. New mortgages are only eligible under the scheme as long as they provide at least a $50 per month reduction in mortgage payments. In general, depending on the lender, borrowers must have a FICO credit score of 620 and a debt-to-income ratio of 65% or lower.
Freddie Mac have announced their own refinance scheme, called ‘Refi Possible.’ They are yet to give a specific date but have confirmed that it will come into effect in August. Both schemes are backed and regulated by the FHFA.
Low-income borrowers can apply for refinance loans through their chosen lender. Any lenders can participate but they do not have to if they do not want to. However, many of the big lenders are opening up to these programs, putting their criteria for these programs so mortgage brokers like MortgageQuote.com can help as many borrowers as possible.
There are many benefits to refinancing and low-income borrowers could see significant reductions in their monthly mortgage payments. Although there are some potential downsides, like increased long-term costs and high closing costs, these are largely addressed by the new refinance schemes. Any homeowner that meets the eligibility requirements for the new Fannie Mae and Freddie Mac should consider refinancing.
In order to apply, you must first determine whether your home loan is backed by Fannie Mae or Freddie Mac. The lookup tools listed above can help here or you can seek the advice of a mortgage specialist. If your home loan is backed by one of these organizations, you can apply with us for a refinance loan and reduce your monthly mortgage payments.
Many lenders will be participating in the scheme, so the choice of new loans available will be extensive so as we are a mortgage brokerage firm, we should have many options for you to choose from. As a result, homeowners should consider working with a mortgage broker such as MortgageQuote.com when making their applications. We compare multiple lenders to find favorable rates and programs, and you must consider the closing costs too. We have access to most of the top lenders and we can assist you with the application process to make sure things run smoothly. We can also guide you about potential roadblocks throughout the process.
All low-income borrowers should be aware of the potential benefits of the new refinance schemes introduced by Fannie Mae and Freddie Mac. Start your refinance MortgageQuote.com query to get more information and start making your application right away to reduce your monthly mortgage payment.
*All guidelines are subject to change.
For further information, please contact Mortgage Quote
*Reduction must include principal, interest and the mortgage insurance payment (if applicable).
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