The Federal Housing Finance Agency (FHFA) has announced that Fannie Mae and Freddie Mac will soon offer a new refinance program for low-income borrowers. Eligible borrowers will have access to a reduced interest rate and lower monthly payments, saving them hundreds monthly.
Those who take advantage of the new refinance option could save an average of $100 to $250 per month or $1,200 to $3,000 annually.
Related: Home Possible Mortgages
How Does the New Refinance Program Work?
The new refinance program should become available summer of 2021. The Fannie Mae refinance option will be known as RefiNow, while Freddie Mac will be known as Refi Possible.
The new refinance program will target low-income borrowers who could benefit from lower interest rates and payments.
Borrowers who qualify could receive the following benefits, according to Fannie Mae:
- Reduction in the homeowner’s interest rate by a minimum of 50 basis points and a savings of at least $50 in the homeowner’s monthly mortgage payment.
- $500 credit from Fannie Mae at the time the loan is purchased if an appraisal was obtained for the transaction. The credit is given to the lender, who must pass it on to the homeowner.
- Waiving of 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 these benefits, according to Fannie Mae, a borrower must:
- Be applying for a Fannie Mae-backed mortgage secured by a 1-unit, principal residence.
- Have a current income at or below 80% of the AMI (not the income as of origination of the original loan).
- Not missed a mortgage payment in the past six months, and no more than one missed mortgage payment in the past 12 months.
- Have a mortgage with a loan-to-value ratio up to 97%, a debt-to-income ratio of 65% or less, and a minimum 620 FICO score.
Why is FHFA helping Low-Income Homeowners?
As interest rates fell last year due to COVID-19, many homeowners took advantage and reduced their monthly payment or loan terms. However, low-income borrowers did not have the same opportunity to refinance. Therefore, FHFA has implemented the new refinance program to help borrowers who have not already refinanced.
The refinance programs can help families who have experienced job losses or other financial burdens due to the pandemic. The program could also prevent homeowners from losing their homes.
Should Borrowers Hold-Off Refinance Plans Until This Refinance Program Is Available?
For lower-income borrowers, the FHFA initiative is worth the wait. Other refinance mortgage options do not guarantee a rate cut, including waived fees, or reduced mortgage payments.
Because of unpredictable mortgage interest rates, borrowers may be concerned that waiting for the new refinance program could result in missing out on locking in the current attractive interest rates.
If this is a concern, borrowers can apply for a refinance now and choose an extended rate lock. With rates below 3%, this could help borrowers feel more comfortable waiting for the FHFA program to begin.
Related: When is a Good Time to Refinance?
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in mortgages for first-time homebuyers, conventional home mortgages, refinance loans, reverse mortgages, and FHA, VA, and USDA mortgage options. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.
To get started with a mortgage to buy your next home, please fill out our Quick Mortgage Application or contact us.