A new mortgage refinancing program from Fannie Mae targeted to low- and moderate-income borrowers opens to applicants tomorrow, June 5.

With mortgage rates still hovering not far from all-time lows, now is a great time for homeowners to consider a refi. However, many lenders have imposed tight credit standards, which meant some low- and moderate-income homeowners were denied the opportunity to save by refinancing to a lower rate.

With that reality in mind, the Federal Housing Finance Agency (FHFA) in April announced a new refinance option for low-income borrowers with mortgages owned by Fannie Mae and Freddie Mac. Freddie Mac’s version of the program, called Refi Possible, will launch August 30. FHFA estimates that borrowers who take advantage of the new refinance option could save $100 to $250 a month.

“Last year saw a spike in refinances, but more than 2 million low-income families did not take advantage of the record-low mortgage rates by refinancing,” FHFA Director Mark Calabria said in a statement. “This new refinance option is designed to help eligible borrowers who have not already refinanced save between $1,200 and $3,000 a year on their mortgage payment.”

The new refinance option requires that a refi results in a monthly savings of at least $50, and a reduction in the borrower’s interest rate of at least 50 basis points. For properties not eligible for an appraisal waiver, the program also offers a $500 credit for appraisal fees.

The program also lets borrowers with balances of less than $300,000 out of the adverse market refinance fee that Fannie and Freddie imposed last year.

The new program helps spread the refi savings that mainly benefited financially stable homeowners.

“The single biggest thing most households can do to take advantage of low interest rates is for homeowners to refinance their mortgages,” says Greg McBride, Bankrate’s chief financial analyst. “Reducing the monthly payments in a meaningful way can create a pathway to accelerate debt repayment or breathing room to boost savings.”

Who’s eligible to refinance

This refi program has very specific eligibility requirements. To qualify, you must:

  • Have a mortgage backed by Fannie on a one-unit single-family property. Investment properties and second homes aren’t eligible. (Freddie Mac is expected to start its own similar program this summer.)
  • Make 80 percent or less of your area’s median income. Fannie Mae’s income eligibility tool is here; Freddie Mac’s is here. In Chicago, for instance, the income cap for this program is $71,280.
  • Not have missed a payment in the past six months. Borrowers can have no more than one missed payment in the past year.
  • Have 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.

Borrowers should contact their lenders for more information. Not all lenders will participate in the program, so shop around with various lenders. Homeowners can verify whether they have an eligible loan with Fannie Mae’s Loan Lookup Tool.

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