RefiNow is helping lower-income borrowers refinance
Millions of homeowners still have mortgage rates above current market rates. But many think they can’t refinance due to the upfront cost.
Fannie Mae’s new RefiNow program aims to change that.
RefiNow can help homeowners get better mortgage interest rates, reduce their monthly payments, and pay less for out-of-pocket closing costs.
If you make low or moderate income and hope to refinance, this program might be for you.
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What is RefiNow?
Under the guidance of the Federal Housing Finance Agency (FHFA), Fannie Mae recently rolled out a new program called RefiNow.
RefiNow is a low-income refinance option, designed to help more homeowners benefit from the current low-interest-rate environment and sidestep some of the financial hurdles that can make the refi process unaffordable.
“Borrowers whose income meets, but does not exceed, their area’s median income, can apply for RefiNow through their mortgage company to refinance a loan on their primary home while also reducing administrative fees and even waving the cost for an appraisal if one is required,” explains Brett Bivenour, chief technology officer at FasterFi in Melville, New York.
Benefits of the Fannie Mae RefiNow program
The RefiNow program offers several perks to those who qualify, including a lower interest rate, reduced monthly payments, and savings on out-of-pocket appraisal expenses.
“One of the main benefits of the RefiNow program is that it makes refinancing more accessible to a larger pool of qualified applicants at a time when interest rates are at historic lows,” adds Bivenour.
“Borrowers who meet the eligibility requirements can access historically low rates without worrying about closing costs and other expenses eating into their savings.”
With a RefiNow refinance, you are guaranteed a lower interest rate and decreased monthly payments.
Also, if an appraisal is needed for the transaction, it will likely be paid for. A $500 appraisal credit will be provided to your lender, to be passed on to you, at the time your new loan is purchased.
How the RefiNow program works
To pursue a RefiNow refinance, you first have to determine if your existing loan is owned or securitized by Fannie Mae. You can check this by using the Fannie Mae mortgage loan lookup tool.
Once you verify that your loan is owned by Fannie Mae, you’ll need to use Fannie Mae’s Area Median Income Lookup Tool to confirm your area’s median income. This will ensure that the income of all borrowers on the loan does not exceed the ceiling allowed by RefiNow.
The good news is that RefiNow has recently been expanded to include those making at or below 100% of their area’s median income, an increase from the previous cap of 80%.
That means more homeowners are now refi-eligible and you don’t need an ultra-low income to qualify.
“The next step is to contact your loan officer. As Fannie Mae doesn’t offer loans directly to consumers, the borrower will likely apply through their existing mortgage lender or mortgage servicer,” Bivenour notes.
“Be aware that lenders are not required to participate in this program, so you may need to pursue a RefiNow refinance through another participating lender,” he explains.
Requirements to qualify for RefiNow
To be eligible for a RefiNow refinance, you must meet the following criteria:
- Have a Fannie Mae-owned mortgage on your primary residence
- Earn income below the applicable limit, which is currently 100% of your area’s median income (AMI)
- Have no missed mortgage payments over the past six months, and no more than one missed payment in the past 12 months
- Have a current credit score of 620 or higher
- Have a loan-to-value ratio of 97% or less
- Have a debt-to-income ratio of 65% or less
“Borrowers listed on the new refinance loan also have to be the same as those in the previous loan — you cannot add or remove any borrowers. And RefiNow is only for a one-unit principal residence, not second or vacation homes,” says Mayer Dallal, managing director for mortgage lender MBANC, headquartered in Manhattan Beach, California.
Fortunately, Fannie Mae recently loosened the rules to qualify for RefiNow.
The agency has now eliminated the maximum loan seasoning requirement of 10 years and removed the $5,000 cap on the financing of closing costs, prepaid items, and points.
What’s more, any reduction to your monthly mortgage payment is now allowed (previously, a minimum reduction of $50 per month was required).
Fannie Mae RefiNow drawbacks
On the downside, Fannie Mae’s RefiNow program doesn’t allow cash-out refinancing.
“You can only get a maximum of $250 back, and any other cash you take out has to go to pay down your mortgage or cover closing costs,” says Dallal.
Another drawback? Your mortgage must be a Fannie Mae-backed loan. Other types of loans — such as Freddie Mac, FHA, VA, or USDA home loans — don’t qualify.
Fortunately, there are other options worth looking into if you’re not eligible for RefiNow.
Alternative low-income refinance options
A RefiNow refinance isn’t your only choice here.
Especially if you don’t qualify, you should look into one or more of the following alternative strategies:
- Freddie Mac Refi Possible — Do you have a mortgage loan owned or securitized by Freddie Mac? You can explore a Refi Possible refinance, which offers identical benefits and has roughly the same eligibility requirements as a RefiNow refinance
- Standard conventional refinance — If you have a non-government-backed loan, a conventional refi may be able to lower your rate and charge lower costs with greater flexibility than other refinance options
- Streamline refinance or IRRRL — If you have an FHA mortgage loan or a VA home loan, consider, respectively, an FHA Streamline Refinance or an interest rate reduction refinance loan (IRRRL). Both programs involve limited borrower credit documentation and underwriting. With less red tape required, the refi process can happen more quickly, although closing costs may still apply
- Loan modification — Have you suffered a loss of income and can’t qualify for a standard refinance? A mortgage loan modification may help. This Involves your lender agreeing to alter the terms of your mortgage to avoid default and decrease your monthly payments. A loan modification does not replace your existing home loan or your lender, but it restructures your loan to make it more manageable when you encounter difficulty making your mortgage payments
Is RefiNow right for me?
Assuming you qualify, a RefiNow refinance can be a smart move that drops your interest rate and results in paying a lot less over time.
“This program helps lower-income borrowers decrease their monthly mortgage payment. Even an extra $50 less per month can make a big difference for a lot of people,” says Dallal.
He continues, “RefiNow is a win-win; it’s helping people save money and pay back their loans more responsibly, and it’s helping lenders get paid rather than deal with late payments or defaults.”
Plus, it’s even easier to qualify now, thanks to Fannie Mae increasing the area median income limit from 80% to 100%.
As Bivenour says, “Expanding the program allows more qualified borrowers to take advantage of the cost savings that come from refinancing.”