Fannie and Freddie Helping Lower Income Borrowers
On June 5, Fannie Mae introduced a special low-income refinance program. Freddie Mac followed shortly thereafter. What makes this program so special is it allows borrowers to refinance at very low rates who may have had trouble refinancing in the past. There are several new advantages with these programs perhaps most notably have a debt ratio of up to 65%. Current refinance loans underwritten to Fannie and Freddie standards wouldn’t accept such high debt ratios.
The first requirement is the loan must be owned by Fannie Mae. Some may confuse who owns the loan compared to who the borrowers send their payments to. If for example, you send your monthly payment to a bank or mortgage company, they’re just the servicer. The servicer is the entity that collects the monthly payment on behalf of the owner of the note.
The servicer collects a fee for this service before sending the remaining amount to the owner of the note. In this case, it’s Fannie Mae. The procedure is the same at Freddie Mac. There is no getting around this one, the note must be owned by either. At the same time, both have online tools to tell you whether or not your loan is owned by Fannie or Freddie. If you’ve a standard mortgage on a primary residence, it’s very likely owned by these two. Fannie’s program is deemed the ‘RefiNow’ program.
The RefiNow requires the lender to reduce the current rate on the note by at least one-half of one percent and also reducing the monthly payment by at least $50. The decrease in rate can be more to meet the $50 requirement. Using current automated underwriting systems, the approval spells out the types of documentation needed.
One of these pieces of documentation is an appraisal. Sometimes these approvals waive the requirement for an appraisal. As such, this program provides the borrowers with an additional $500 credit to be applied to the appraisal fee. Loan-to-value limits are also raised up to 97% of the current market value of the property. Qualifying credit scores are also greatly reduced. The minimum credit score will be 620. Standard conventional refinance loans can require the minimum credit score for high LTV loans to be as high as 740.
Fannie’s adverse market refinance fee of 0.50% is also waived. Homeowners must occupy the single-family how and have an Area Median Income, or AMI, of no more than 80%. Meaning income can be no greater than 80% of the local income for the area. Borrowers must have not made a payment more than 30 days past the due date within the previous six months and no more than one such payment in the previous 12. Homeowners apply directly with a conventional mortgage company and not with Fannie or Freddie.
For homeowners with high LTVs combined with lower credit scores, they would have found it difficult to qualify for a refinance in order to get a lower rate. If this is you or someone you know, this is an outstanding loan program to explore.
Written by David Reed for www.RealtyTimes.com Copyright © 2021 Realty Times All Rights Reserved. Reed is from Austin, Texas and is the author of The Real Estate Investor’s Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. A Senior Loan Officer and Mortgage Executive for more than 20 years, he has also appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show.