Do you qualify for the home affordable refinance program?
Fannie Mae Home Affordable Refinance rules
Objective: Fannie Mae's Home Affordable Refinance program is intended to help borrowers refinance to reduce their monthly principal-and-interest payment or switch from a risky loan product such as a short-term, adjustable-rate mortgage, or ARM, or from an interest-only mortgage to a fixed-rate mortgage.
- To qualify, the borrower must have an existing mortgage that is owned or guaranteed by Fannie Mae. To find out whether Fannie Mae owns or guarantees your loan:
- Call (800) 732-6643.
- Send an e-mail.
- Call your loan servicer.
- Search for your loan on Fannie Mae's Web site. Be sure to read Fannie Mae's FAQs about the loan lookup service.
- Borrowers can apply through any lender that has been approved by Fannie Mae and authorized to offer this program. However, some borrowers may find that they need to refinance through their original lender or loan servicer. (Lenders should refer to "Announcement 09-04: Home Affordable Refinance -- New Refinance Options for Existing Fannie Mae Loans" for more information.)
- The new loan may be a fixed-rate mortgage or an ARM with an initial fixed-rate period of at least five years. The payback period may be as long as 40 years.
- So-called "jumbo-conforming" or high-balance loans that meet loan-limit requirements may be eligible.
- Vacation/second-home and investment properties may be eligible.
- The borrower may be able to finance closing costs or take out cash of up to 2 percent of the mortgage amount or $2,000, whichever is less. Fannie Mae's guidelines state that this cash-out allowance "is intended to provide lenders with operational efficiencies to account for differences in payoff amounts or closing cost items and is not intended to be added to every limited cash-out refinance transaction for the sole purpose of providing cash to the borrower."
- The borrower cannot take out cash to reduce the balance on or pay off a second loan or home-equity line of credit, or HELOC.
- The borrower must have sufficient income to afford the new loan payments. A verbal verification of employment is required. If the borrower is self-employed, this verification may be obtained from a certified public accountant, or CPA, regulatory agency or other "disinterested third party." The lender may request a copy of a business license or other form of verification that the business exists. A paycheck stub, recent tax return or other form of income documentation may be required as well.
- No minimum credit score is required. However, borrowers whose credit is impaired may be offered a higher interest rate.
- The borrower must complete a standard loan application.
- An appraisal may be required.
- More information can be found on Fannie Mae's Web site.
Freddie Mac Relief Refinance Mortgage rules
Objective: Freddie Mac's Home Affordable Refinance program, known as the Relief Refinance Mortgage, is designed to assist borrowers who are current on their mortgage payments, but would benefit from refinancing into a mortgage that would better position them for long-term homeownership. The program may be used to reduce the borrower's interest rate, shorten the loan repayment period or replace an adjustable-rate mortgage, interest-only mortgage or balloon/reset mortgage with a fixed-rate loan.
- To qualify, the borrower must have an existing mortgage that is owned or guaranteed by Freddie Mac. To find out whether Freddie Mac owns or guarantees your loan, call (800) 373-3343, call your loan servicer or search for your loan on Freddie Mac's Web site.
- Borrowers can apply for this program through their current loan servicer or any Freddie Mac-affiliated lender. Borrowers who apply through their current servicer won't have to have their loan re-underwritten in most cases, but borrowers who switch to a different lender will have to have their loan re-underwritten.
- The new mortgage can be a 15-, 20- or 30-year, fixed-rate loan or an adjustable-rate mortgage with an initial term of five, seven or 10 years. The loan must be fully amortizing (i.e., not an interest-only or payment-option loan). An existing fixed-rate mortgage may not be refinanced with an ARM.
- The property may be a vacation/second home if the existing mortgage was originated as a second-home loan or the borrower now occupies the home as a principal residence.
- The property may be an investment property if the existing mortgage was originated as an investment property or the borrower now occupies the home as a principal residence.
- The existing loan, new loan or both may be a so-called "super-conforming" loan limit within the applicable loan limit for the area.
- If the original loan is covered by mortgage insurance, the insurer must agree to transfer the insurance to the new loan.
- The new loan cannot be used to make a payment on or pay off a second loan.
- Lenders are encouraged to use Freddie Mac's automated valuation model, or AVM, to estimate the property's current market value. Borrowers should ask whether a new appraisal will be required.
- Borrowers may be able to finance an additional $5,000 or up to 4 percent of the new loan amount, whichever is less, to pay closing costs, financing costs or prepaid sums due at closing.
- Borrowers whose monthly payment increases 20 percent or more must provide income and employment documentation and have an acceptable credit score and debt-to-income ratio to demonstrate they can afford the new higher payment. (This scenario typically applies only to borrowers who want to refinance an ARM, interest-only or payment-option type of mortgage, which has a very low interest rate.)
- More information may be found on Freddie Mac's Web site.