Refinancing has been all the buzz this year. Many homeowners have taken advantage of record-low rates to refinance their homes. Unfortunately, lower-income borrowers, especially those who lost income streams due to Covid-19, were unable to refinance because of income requirements. According to the Federal Housing Finance Agency (FHFA), over two million families could not refinance in 2020 when they might have benefited from it. As of June 5, 2021, this is no longer the case. Lower-income homeowners may now potentially save hundreds of dollars per month on their mortgage under a government initiative called “RefiNow.”
I spoke with Jaxzann Riggs of The Mortgage Network to learn about this program.
We have all heard the term “refinancing,” but you may not know why someone might consider refinancing. Homeowners choose to refinance their mortgage for different reasons. Refinancing your home could allow you to secure a lower interest rate, which lowers monthly payments, to shorten the duration of your mortgage, to switch to a fixed-rate mortgage, or to access equity.
While refinancing may sound ideal for your situation, the process and guidelines post-COVID have been quite strict and restrictive. One important factor in qualifying for refinancing is your debt-to-income (DTI) ratio. Your DTI is the percentage of your gross monthly income that you pay each month towards your debt and other obligations, including mortgage, minimum credit card payments, car loans, and student loans. Traditional loans require DTI to be under a certain threshold to refinance — typically under a maximum of 44%. Many people, especially service industry workers and small business owners, lost their jobs and sources of income during the pandemic, and the regulation regarding DTI was an obstacle to refinancing. RefiNow may be able to change that.
RefiNow, Fannie Mae’s new refinance option, makes it easier for homeowners earning at or below 80% of their area median income (AMI) to refinance at a lower interest rate to reduce their monthly payment. This new program is designed to lower the barriers that keep low-income borrowers from refinancing, which have historically resulted in those borrowers refinancing at a slower pace than higher-income borrowers. With RefiNow, you are allowed to have a DTI of up to 65% (instead of 44%) and you will be given an appraisal credit of up to $500. The new program does not just benefit homeowners, it helps lenders because it improves the probability that homeowners who may have been struggling to make their current payments will be able to make future payments, resulting in fewer pandemic related foreclosures. Don’t despair if your loan is owned by Freddie Mac (FHLMC). Freddie is slated to offer a similar loan program in the next few weeks.
To qualify for RefiNow, you must have:
> A Fannie Mae-backed mortgage secured by a one-unit, principal residence. Unsure? Go to https://www.KnowYourOptions.com/loanlookup
> A current income at or below 80% of the Area Median Income (AMI) This varies by census tract, but your lender can look this up for you.
> Not have missed a mortgage payment in the past six months, and no more than one missed mortgage payment in the past 12 months.
> A debt-to-income ratio of 65% or less, and a minimum 620 FICO score (minimum 660 FICO score for manufactured homes).
> A reduction of at least $50 per month on the new loan and you may not access any of your equity.
If you are not sure if a RefiNow loan is right for you, reach out to Jaxzann Riggs at (303) 990-2992 with any questions and to discuss your best options.