Recent years have seen an upheaval in economic landscapes worldwide. The U.S. is experiencing inflation and the real possibility of a recession in 2022. Mortgage interest rates have fluctuated wildly and could continue to rise.

Many homeowners are refinancing their mortgages, taking advantage of lower rates before they rise again. Low-income households could benefit greatly, but these homeowners often think they won’t qualify.

New Low-Income Refinance Programs for Homeowners

The Federal Housing Finance Agency developed and implemented new refinance programs for qualifying low-income homeowners in 2021. Government-controlled Fannie Mae and Freddie Mac, which are home mortgage companies, are offering programs designed to make it easier for this group of people to receive the benefits that refinancing can provide.

When announcing these programs in 2021, FHFA director Mark Calabria explained that though record low mortgages led to a sharp rise in refinances in 2020, there were more than 2 million low-income families who did not benefit. With the new refinance options, eligible borrowers who weren't able to refinance previously could save more on mortgage payments, an estimated $1,200 to $3,000 a year.


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RefiNow and Refi Possible Eligibility

Fannie Mae’s RefiNow and Freddie Mac’s Refi Possible new refinancing options can save low-income homeowners hundreds of dollars in monthly mortgage payments if they qualify. Eligible borrowers must:

  • Have a current mortgage backed by either enterprise

  • Live in a single-family, one-unit property

  • Have an income level of 80% or less of the median income for their area

  • Have made all mortgage payments on time for the previous six months and have missed a maximum of one payment in the last year

  • Have a minimum FICO score of 620, a debt-to-income ratio of 65% or lower, and a current loan-to-value mortgage ratio of 97% or less

Incentives for these programs include:

  • Up to a $500 appraisal credit if the borrower doesn’t qualify for an appraisal waiver

  • A guaranteed minimum of a 0.50% interest rate decrease and a $50 or more reduction of monthly mortgage payment amounts

Every situation is different, but the average borrower can expect to save between $100 and $250 on their monthly mortgage payment.

Refinancing To Reset Your Mortgage Clock

When you refinance your mortgage, you’ll start over with a potentially longer repayment term of 15 or 30 years. Your monthly payment will decrease, but the amount of total interest you’ll pay over that term will likely increase.

Varying Amounts of Money Saved

Several factors determine how much your mortgage payment will decrease if you refinance. Not all lenders will offer you the same terms, so comparing quotes from three to five different sources is wise. Look at the closing costs, the annual percentage rate, and the interest rate.

Quoted interest rates aren’t the same as an APR. The interest rate reflects how much you’ll pay annually to borrow money. The APR includes the interest rate, fees, points, and other costs associated with getting a loan.

To demonstrate how much you might save on your monthly payments, see this example:

  • Your current fixed-rate mortgage has a balance of $250,000, an interest rate of 5.25%, and a monthly payment of $1,325.

  • You refinance that balance with a new fixed-rate, 30-year mortgage.

  • The new mortgage’s interest rate is 3%, with a payment of $1,071.

  • You’ll save $254 on your monthly payments, totaling $3,048 in annual savings.

Although $254 isn’t a huge amount, it can be enough to help you avoid foreclosure or give you enough more for daily living expenses to make a noticeable difference.


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Points for Low-Income Borrowers and Lenders To Consider

Many low-income homeowners are reluctant to pursue a refinance for several reasons:

  • They may feel overwhelmed by the necessary paperwork and steps they need to take.

  • They might not think they have a good chance of approval for a mortgage with favorable terms.

  • They sometimes doubt lenders are motivated to work with low-income borrowers for a refinance.

You’ll need to analyze your financial situation to see if refinancing your mortgage makes sense. If the costs are more than the amount you’ll save or your monthly payment reduction isn’t significant, you probably won’t benefit from refinancing. However, researching your options won’t hurt and could potentially save you thousands of dollars.

Lenders are increasingly busy servicing customers to obtain new mortgages and refinancing for well-qualified borrowers. However, according to Freddie Mac, many lenders do not realize how much refinancing can make it possible for customers to own a home in the long term.

Refinancing To Help Your Overall Financial Situation

Low-income homeowners can see several financial improvements if they refinance their mortgage:

  • Equity will build faster if you get a shorter-term mortgage with a lower interest rate.

  • You can replace an adjustable-rate mortgage with a fixed-rate loan, eliminating the possibility of a rate increase.

  • You’ll have a lower monthly payment if you refinance at lower interest rates for a 30-year term, putting the difference back into your monthly cash flow or savings account.

  • You may pay less in private mortgage insurance if you get a conventional loan.

  • You might not have to carry private mortgage insurance if you owe less than 80% of your home’s value when you refinance.

Paying Closing Costs

Every mortgage loan has associated closing costs, but don’t let that deter you if you’re unable to pay them up front. If refinancing your mortgage will save you more than it costs to originate a new loan, you may qualify for a grant to pay your closing costs. You might also finance the closing costs into your total loan amount.

Fannie Mae and Freddie Mac added a 0.5% adverse market refinance fee to mortgages they refinanced on Dec. 1, 2020. However, the FHFA eliminated that fee late in 2021.

Fannie Mae’s HomeReady Refinance

Fannie Mae has another loan product that eligible low-income homeowners can take advantage of. The HomeReady loan is available to qualifying new home buyers or homeowners. The requirements for this mortgage are more flexible than some:

  • You may include income sources that other mortgages don’t allow.

  • You can add co-borrowers with fewer restrictions.

  • You can possibly refinance an existing Fannie Mae loan with a down payment of 3% or more.

  • You can use gifts to fund your down payment.

To qualify for a HomeReady refinance, the primary requirements are:

  • You can’t already own a home with a HomeReady mortgage.

  • You should have a credit score of 620 or higher. Your lender might let you use alternative credit history data to help you meet this minimum credit score.

  • You must participate in four to six hours of homeownership education courses.

  • Your income must fall at 80% or less of the median income for your county, although living in a low-income area may nullify this requirement.

Ask Mortgage Lenders or Housing Counselors for Assistance

Even with readily available information about refinancing on the internet, you may have questions about refinancing your mortgage. Maybe the information you find is confusing, or you’re unsure if you’ve seen enough to make an informed decision.

Refinancing your home is a significant undertaking, so asking those with more knowledge than you have in this area for guidance is a smart move. The Department of Housing and Urban Development trains housing counselors across the country. These counselors can help you sort through viable options for your specific situation.

Mortgage lenders are familiar with various loan products. They can help you understand the differences and assist you in choosing which options you qualify for and which best suits your needs.

Take Advantage of Low-Income Refinancing Programs

Homeowners in today’s uncertain economic climate may want to solidify their financial position by refinancing their homes. Fannie Mae and Freddie Mac offer refinancing programs designed to benefit low-income borrowers. Though the loan process is sometimes challenging, a new mortgage can save you thousands of dollars long-term and provide breathing room in your monthly budget.