Fannie Mae’s new refinancing program kicks off next week. What you need to know

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Low-income homeowners could potentially save hundreds of dollars a month on mortgages as part of the government refinancing initiative that is starting.

Fannie Mae, one of two government and publicly traded businesses that buy and sell mortgages, will launch its RefiNow program on June 5 with the intention of helping approximately 2 million homeowners lower the interest rate they pay on their mortgages – and hence the amount they pay monthly. Households earning 80% or less of their own average regional income are usually eligible if they can meet other requirements.

“Many low-income homeowners may feel they cannot afford refinancing, are convinced they are inadequate, or are unaware of the potential monthly savings,” Fannie Mae said in a statement.

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When mortgage rates hit an all-time low in 2020, refinancing was roughly $ 2.6 trillion per year, according to Freddie Mac, another government-sponsored venture that buys and sells mortgages. This is the highest annual rate since 2003, when $ 3.9 trillion in refinancing was recorded.

According to the website Zillow, the average rate on a fixed mortgage for 30 years is 2.72%. For a 15-year loan, the average rate is 2.08%. The 30-year rate will average 3% until 2021, according to Fannie Mae’s Economic and Strategic Research Group.

“I think this will have a huge impact on a lot of people,” said Ziggy Jonsson, head of financial products for a mortgage lender. Better.comwho participates in the Fannie Mae program.

“Anything that lowers mortgage payments frees up money for other purposes,” Jonsson said.

Refinancing will save these homeowners between $ 100 and $ 250 a month, according to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. (Freddie will start his own refi program this summer).

To be eligible, borrowers must have a Fannie Mae-backed mortgage on the home they are expected to reside in and, as mentioned, have an income of no more than 80% of the median income in their area. They also had to not miss a single payment in the previous six months and no more than one in the previous 12 months.

In addition, their mortgage cannot have a loan-to-value ratio above 97%, and they must have a debt-to-income ratio below 65% and a FICO credit rating of at least 620.

Lenders, meanwhile, would have to cut the borrower’s monthly mortgage payment by at least $ 50 and provide borrowers with a minimum 50 basis point (half percentage point) cut in their interest rate.

“It can’t be less than that, but more can be done,” said Jonsson.

Lenders will also need to abandon the current unfavorable market refinancing fee for borrowers whose loan balance is not more than USD 300,000. And if the borrower is not eligible for an appraisal waiver, the lender must provide a loan of up to $ 500.

Homeowners can contact any mortgage company that wants to consider refinancing through the Fannie Mae program. While lenders are not required to participate, many are, including Quicken Loans (Rocket Mortgage), the nation’s largest mortgage lender.

If you are not sure if your loan belongs to Fannie Mae, you can use loan search tool

“It’s great to see that lower rates are available to a lot more people,” Jonsson said. “Some people have tried their best to benefit from them.”

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