There Are New Refinance Loan Options for Previously Ineligible Borrowers

If you’re evaluating your financial goals, it may be wise also to consider your refinance loan options. There’s rarely been a better time to leverage your most important investment to help you plan for the future.

As of June 5, Fannie Mae and Freddie Mac are offering new refinancing options for mortgage borrowers. This is a great post-pandemic opportunity for anyone looking to get more out of their home.

First, a little about Fannie & Freddie

Fannie Mae and Freddie Mac are two financial institutions that the federal government backs. They buy mortgages from various lenders.

Over the years, they’ve played a central role in making homeownership attainable for new buyers through more available credit.

Now, they’re announcing new refinancing packages to make homeownership a more sustainable experience after the economic turbulence associated with COVID-19.

Fannie Mae & Freddie Mac are doing this to help low-income mortgage holders get similar refinance loan options as others did in 2020.

So, what are these new refinancing options?

Previously, low credit scores and high debt levels prevented many homeowners from accessing refinance loan options. Both Fannie Mae and Freddie Mac introduced new refinancing programs to widen eligibility requirements.

Before we dig into these programs, don’t forget about a key eligibility factor that will impact every borrower. We’re talking about your debt-to-income ratio, also known as your DTI. Your DTI measures the amount of debt you hold relative to the amount of money you make.

Investopedia offers a great example of how your mortgage lender completes debt-to-income calculations.

1. DTI= Gross Monthly Income
   Total of Monthly Debt Payments​Sum up your monthly debt payments, including credit cards, loans, and mortgages.
2. Divide your total monthly debt payment amount by your monthly gross income.
3. The result will yield a decimal, so multiply the result by 100 to achieve your DTI percentage.

Fannie Mae introduces RefiNow

Fannie Mae’s RefiNow program is expanding who’s eligible to refinance their mortgage.

Here are some key highlights of RefiNow:

• Those with a debt-to-income (DTI) of up to 65% may qualify for $50 in monthly payment savings and at least a 0.5% interest rate reduction.
• Eligible borrowers can receive waivers for appraisal and other credits to cover the cost of refinancing.

Not bad, right? But there are even more options available, including the Refi Possible option from Freddie Mac.

Refi Possible Freddie Mac’s new option is geared at helping low-income borrowers refinance for less.

Here are some of the benefits that eligible borrowers can receive:

• Suppose your income is at or below 80 percent of your area’s median income standard. In that case, you may be eligible to receive an interest rate reduction of 0.5% and at least $50 in monthly payment savings.

As you can see, the primary difference between Fannie Mae & Freddie Mac is the eligibility requirements. Fannie Mae focuses on debt-to-income calculations (DTI), whereas Freddie Mac focuses on income relative to your area’s median levels.

Additionally, the RefiNow program gives borrowers the chance to cash out up $250 when they refinance, whereas Freddie Mac’s program does not offer a cash-out option.

Bottom line

It’s easier than ever to explore what refinance loan options work best for you. If you’ve experienced financial difficulties recently, new refinancing programs could help you achieve greater stability.

Explore our Refinance resources to learn more about available loan programs to help you reach your financial goals.