Think you need substantial home equity to refinance your mortgage? Depending on your current loan and financial situation, that may not be the case. Several refinance options can accommodate eligible homeowners with relatively little equity.
One important update: the Freddie Mac Enhanced Relief Refinance program, sometimes called FMERR, is no longer the program homeowners should be looking to today. Current options include Fannie Mae RefiNow, Freddie Mac Refi Possible, and other refinance programs depending on who owns or insures your existing mortgage.
What Is Fannie Mae RefiNow?
RefiNow is a refinance option for qualifying homeowners whose existing conventional mortgage is owned or securitized by Fannie Mae. It is designed to help eligible borrowers reduce their monthly housing costs.
Current requirements include qualifying income at or below 100% of the area median income for the property's location. The existing mortgage must meet Fannie Mae requirements, and the property must be a one-unit principal residence.
The new RefiNow loan can have a loan-to-value ratio as high as 97% in eligible situations, which can make the program useful for homeowners who have not accumulated substantial equity.
What Are the Key RefiNow Requirements?
RefiNow requires the existing mortgage to be seasoned for at least 12 months. The borrower cannot have a 30-day mortgage delinquency during the most recent six months and can have no more than one 30-day delinquency during months seven through 12.
The new loan must also reduce the borrower's interest rate by at least 0.50 percentage points and produce a reduction in the monthly principal, interest, and mortgage insurance payment, when mortgage insurance applies.
RefiNow currently allows a debt-to-income ratio of up to 65% and does not establish a minimum credit score requirement, although the complete loan must still satisfy applicable underwriting requirements.
What Is Freddie Mac Refi Possible?
Homeowners whose conventional mortgage is owned by Freddie Mac may instead qualify for Refi Possible. Like RefiNow, this program is intended for eligible low- and moderate-income borrowers and currently limits qualifying income to 100% of the applicable area median income.
Refi Possible generally permits a maximum 97% loan-to-value ratio for eligible one-unit properties, with different limits for certain manufactured homes and loans involving non-occupying borrowers.
The program is available for a one-unit primary residence and requires a fixed-rate mortgage. Cash back to the borrower is limited to $250.
Will You Need a Home Appraisal?
Limited equity does not automatically mean you will need a traditional appraisal. Depending on the property and loan, Fannie Mae or Freddie Mac automated valuation options may be available.
When an appraisal is required for an eligible RefiNow or Refi Possible transaction, the programs currently provide a $500 appraisal credit to the lender that must be passed through to the borrower.
Other Refinance Options for Homeowners With Limited Equity
RefiNow and Refi Possible are not the only possibilities. Your existing mortgage type can open the door to other refinance programs.
Homeowners with an FHA-insured mortgage may qualify for an FHA Streamline Refinance, which generally does not require a new appraisal and must provide the required net tangible benefit. Eligible homeowners with an existing VA-backed mortgage may consider a VA Interest Rate Reduction Refinance Loan, commonly called an IRRRL.
The right option depends on your existing mortgage, payment history, income, property, and refinancing goals.
Is Refinancing With Limited Equity Right for You?
Being eligible to refinance does not automatically mean refinancing is the right financial decision. Compare your existing mortgage with the proposed loan, including the interest rate, monthly payment, closing costs, mortgage insurance, new loan term, and total borrowing costs.
Loan Wolf Lending can help Florida homeowners determine who owns or insures their current mortgage and explore refinance options that may be available even with limited home equity. Call 754-755-3075 to discuss your refinancing goals.