Mortgage giants extend refi privileges to lower-income homeowners

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With mortgage rates falling a bit in recent weeks, the refinancing window is open. However, lenders are imposing tight credit standards, which means some low- and moderate-income homeowners might not qualify for a refi that could cut their monthly payments.

With that reality in mind, the Federal Housing Finance Agency (FHFA) on Wednesday announced a new refinance option for low-income borrowers with mortgages owned by Fannie Mae and Freddie Mac. 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.”

In one downside, the refi program doesn’t begin until this summer. Most forecasters expect mortgage rates to tick up during the spring.

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 had 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

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

  • Have a mortgage backed by Fannie or Freddie on a one-unit single-family property. Investment properties and second homes aren’t eligible.
  • 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.

FHFA is still working out the details of the program. Borrowers can contact their lenders for more information.

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