Real Estate

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Lower-income homeowners could potentially save hundreds of dollars a month on their mortgage under a government refinancing initiative that starts next week.

Fannie Mae, one of two government-sponsored and publicly traded enterprises that buys and sells mortgages, will open its “RefiNow” program on June 5 with the intention of helping an estimated 2 million homeowners lower the interest rate they pay on their mortgage — and, therefore, the amount they pay monthly. Households earning 80% or less of their area’s median income are generally eligible if they can meet some other requirements.

“Many homeowners in lower income brackets may believe they can’t afford to refinance, be convinced they won’t qualify, or be unaware of the potential monthly savings,” according to a statement from Fannie Mae. 

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With mortgage rates reaching historical lows in 2020, refinancing activity hit roughly $2.6 trillion for the year, according to Freddie Mac, the other government-sponsored enterprise that buys and sells mortgages. That marks the highest annual total since 2003, when $3.9 trillion in refinancing was recorded.

The average rate on a 30-year fixed mortgage is 2.72%, according to real estate site Zillow. For a 15-year loan, the average rate is 2.08%. The 30-year rate is expected to average 3% through 2021, according to Fannie Mae’s Economic and Strategic Research Group.

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

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

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

To be eligible, borrowers must have a Fannie Mae-backed mortgage for their house — which they must live in — and, as mentioned, have income at or below 80% of median income in their area. They also must have missed no payments in the previous six months and no more than one in the previous 12 months.

Additionally, their mortgage can’t have a loan-to-value ratio above 97%, and they must have a debt-to-income ratio below 65% or a FICO credit score of at least 620.

Lenders, meanwhile, would be required to reduce the borrower’s monthly mortgage payment by at least $50 and give borrowers at least a 50-basis-point (half a percentage point) reduction in their interest rate.

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

Lenders would also need to waive the current adverse market refinance fee for borrowers whose loan balance is no more than $300,000. And if the borrower is ineligible for an appraisal waiver, the lender would need to provide a credit of up to $500.

Homeowners can contact any mortgage company they want to explore refinancing through Fannie Mae’s program. While lenders aren’t required to participate, many are, including Quicken Loans (Rocket Mortgage), the nation’s largest mortgage lender.

If you’re uncertain whether your loan is owned by Fannie Mae, you can use the loan lookup tool

“It’s good to see lower rates being available to a lot more people,” Jonsson said. “Some people were struggling to benefit from them.”

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