By Jeff Ostrowski and Zach Wichter
A new mortgage lending refinancing program directed by Fannie Mae on low- and moderate-income lenders opened to applicants on June 5th.
Since the mortgage rates are not far from the everyday lows, this is a great time for homeowners to consider a refi. However, many credit providers have introduced strict credit standards, which means that homeowners with low and moderate incomes have been denied the opportunity to save by refinancing at a lower rate.
With reality in mind, the Federal Housing Finance Agency (FHFA) in April announced a new refinancing option for low-income lenders with the mortgage loan owned by Fannie Mae and Freddie Mac. Freddie Mac’s version of the program, called Refi Possible, will be released on August 30th. FHFA estimates that lenders using the new refinancing option can save $ 100 to $ 250 per month.
“Last year, refinancing increased, but more than 2 million low-income families did not take advantage of the record low mortgage rates by being refinanced,” FHFA director Mark Calabria said in a statement.
“This new refinancing option is designed to help borrowers who have not yet refinanced save between $ 1,200 and $ 3,000 per year on their mortgage payment.”
The new refinancing option requires that a refinance result in a monthly savings of at least $ 50, and that the borrower’s interest rate be reduced by at least 50 basis points. For properties that are not eligible for a rating exemption, the program also offers a $ 500 credit for valuation fees.
The program also puts borrowers with a balance of less than $ 300,000 in the damaging market refinancing fee that Fannie and Freddie instituted last year.
The new program helps spread the refi savings that have primarily benefited financially stable homeowners.
“The biggest single thing most households can do to take advantage of low interest rates is have homeowners refinance their mortgage loans,” says Greg McBride, CFO of Bankrate.
“If you reduce your monthly payments in a meaningful way, you can create a way to speed up debt repayments or give you breathing space to promote savings.”
Who can refinance
This refi program has very specific requirements to be eligible. To qualify, you must:
-Has a mortgage backed by Fannie on a single unit unit. Investment properties and second homes are not eligible. (Freddie Mac is expected to launch his own similar program this summer.)
-Not missed a payment in the last six months. Borrowers can not miss more than one payment in the past year.
-Has a loan-to-value ratio of 97 percent or less, a debt-to-income ratio of 65 percent or less and a FICO score of 620 or higher.
Lenders should contact their lenders for more information. Not all credit providers will participate in the program, so shop around at different lenders. Homeowners can verify they have a suitable loan from Fannie Mae Tool for looking up loans.
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