New Mortgage Refinance Option for Low-Income Families

New mortgage refinance option

New Mortgage Refinance Option for Low-Income Families

If you own a house, there’s a new government funding program that can help you benefit from low-interest rates. The Federal Housing Finance Agency stated that Freddie Mac and Fannie Mae would provide low-income homeowners with a new mortgage refinance option (starting this summer). You can get lower mortgage rates and lower monthly payments when you meet these requirements.

Both the Fannie Mae and Freddie Mac are offering a new refinance option called “commercial mortgage” or “company-backed mortgage.” These government-backed organizations are specifically designed to sustain the local mortgage market.

The new proposal aims to alleviate competitive mortgage loan terms for low-income homeowners. It not only cut payments and interest rates but also eliminates the inconvenient market refinancing fees that Fannie Mae and Freddie Mac currently charged to offset pandemic-related losses. In addition, the new mortgage refinances option encourages lenders to support low-income homeowners through incentives such as credit loans. 

Here’s all the information you need to know about the new refinance home loan options.

Is Now a Good Time to Refinance?

The current downward trend in interest rates suggests that we should consider these enterprise-backed mortgages. Typically, when the economy is strong and the unemployment rate is low, interest rates (borrowing costs) will rise as people are more confident about financing.

However, during economic turmoil, interest rates tend to fall because people are more cautious about borrowing. Therefore, the U.S. government (through the Federal Reserve) and lenders are trying to make borrowing more appealing and affordable in these circumstances.

The FHFA inferred that people who benefit from the new plan could save at least $50 every month on mortgages, but they expect homeowners to save an average of $100 to $250 per month. Most people think these numbers are not enough, but the additional $1,000-3,000 per year could be the difference between a solid emergency fund and not having financial support at all.

How to get a loan to refinance your business 

There are few things to consider when applying for a new mortgage refinance loan. First, Fannie Mae and Freddie Mac have different names for this program. Freddie called its enterprise-backed home mortgages “Refi Possible”; Fannie’s use “RefiNow” for the same program.

Second, you’ll require to verify whether Fannie Mae or Freddie Mac backs your home loan. For Fannie Mae, you can search your loan details on their website; for Fannie Mae, you can use the loan lookup tool on their available sites.

Third, you must meet various requirements to qualify for the programs.

  • Your FICO credit rating must be at least 620. 
  • Your income should not exceed 80% of the average income in your area. 
  • You’ll need to provide proof that you’ve been current on home loan repayments for the past six months.
  • You have not missed more than one mortgage in the past 12 months.
  • Have an optimal home loan-to-value (LTV) ratio of 95% or 97%, depending on the type of residential property.
  • Your debt-to-income ratio (DTI) must be 65% or lower.

Prepare for an Enterprise Financing Loan

If you think that enterprise-backed mortgage refinancing may be a good option, you will need to follow the same process as applying for traditional mortgage refinancing: 

  • Get prepared by comprehending why you’re refinancing: Is it to reduce your monthly repayment? Lower your mortgage rates?
  • Check your balance to see if you meet the conditions. If your score is too low, take steps to improve your credit score.
  • Check mortgage rates and compare lender rates to determine whether refinancing makes sense for you.
  • Find a lending institution that you are comfortable with and let them know that you are interested in these projects. Applications for Fannie Mae’s RefiNow will open in June 2021; Freddie Mac’s ReFi company won’t approve applications till late August 2021.
  • Apply for a loan and acquire the new low-interest rate or monthly payment.

The Bottom line

The new enterprise refinancing loans may be an opportunity to save money on home loans and get some financial assistance. While you wait for the commencement of these opportunities, this may be the best time to find out the type of mortgage you have, check your creditworthiness, and gather essential information for your application.