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Low-income homeowners could potentially save hundreds of dollars a month on their mortgage as part of a government refinancing initiative that kicks off.
Fannie Mae, one of two government-funded, publicly traded companies that buys and sells mortgages, will open its “RefiNow” program on June 5 with the intention of helping about 2 million homeowners to cut the rate. interest they pay on their mortgage – and, therefore, the amount they pay monthly. Households earning 80% or less of their region’s median income are generally eligible if they can meet other requirements.
“Many homeowners in lower income brackets may believe they cannot afford to refinance, be convinced that they will not qualify, or be unaware of the potential monthly savings,” according to a statement from Fannie Mae.
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While mortgage rates hit all-time low levels in 2020, refinancing activity reached about $ 2.6 trillion for the year, according to Freddie Mac, the other government-sponsored company that buys and sells mortgage loans. Mortgages. This is the highest annual total since 2003, when $ 3.9 trillion in refinancing was recorded.
The average rate for a 30-year fixed mortgage is 2.72%, according to real estate website 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 policy research group.
“I think this will have a huge impact on a lot of people,” said Ziggy Jonsson, financial products manager for mortgage lender Better.com, which participates in the Fannie Mae program.
“Anything that lowers mortgage payments frees up money for other things,” Jonsson said.
Refinancing would save these homeowners between $ 100 and $ 250 per month, according to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. (Freddie will be launching his own refi program later this summer).
To be eligible, borrowers must have a Fannie Mae back-to-back mortgage for their home – in which they are to live – and, as mentioned, have income at or below 80% of the median income in their area. They must also not have missed any payments in the previous six months and no more than one in the previous 12 months.
Additionally, their mortgage cannot have a loan-to-value ratio greater than 97%, and they must have a debt-to-income ratio of less than 65% and a FICO credit score of at least 620.
Lenders, on the other hand, would be required to reduce the borrower’s monthly mortgage payment by at least $ 50 and give borrowers a reduction of at least 50 basis points (half a percentage point) of their interest rate.
“It can’t be less than that, but it could be more,” Jonsson said.
Lenders should also waive current adverse market refinancing fees for borrowers with loan balances not exceeding $ 300,000. And if the borrower does not qualify for an appraisal waiver, the lender will need to provide credit of up to $ 500.
Homeowners can contact any mortgage company they wish to explore under the Fannie Mae program. While lenders are not required to participate, many do, including Quicken Loans (Rocket Mortgage), the nation’s largest mortgage lender.
If you are unsure whether your loan belongs to Fannie Mae, you can use the loan finder.
“It’s good to see lower rates available to a lot more people,” Jonsson said. “Some people had a hard time taking advantage of it.”