After a financial crisis and housing downturn, homeowners often find it difficult to refinance. Refinancing could potentially help them pay less each month, pay off the mortgage sooner, or get into a safer fixed-rate loan, but it’s harder to qualify. Several refinancing programs are available to help borrowers get a new loan.
In general, these programs are designed to help homeowners—and sometimes investors—get into plain-vanilla loans with low rates. In some cases, your interest rate or monthly payment has to decrease (unless you’re moving from an adjustable-rate mortgage to a fixed-rate mortgage), and you generally can’t take any cash out. In any case, refinancing should improve your situation and help you move forward.
Making Home Affordable
The most significant initiative for refinancing programs is the Making Home Affordable (MHA) program. This program uses various strategies, including refinancing assistance, loan modifications, and help for the unemployed. Visit the MHA website to get the latest news on new programs and changes to existing programs.
MHA also offers the Homeowner's HOPE Hotline, which is staffed with HUD-approved counselors, and borrowers can call 24/7 (888-995-HOPE).
Refinancing FHA Loans
The Federal Housing Administration also offers a refinancing program for homeowners with FHA loans. FHA’s Streamline Refinance Program allows you to refinance home loans, including underwater mortgages. In addition, you can get the transaction done with very little documentation. To qualify for a streamlined refinance, you must already have an FHA loan, and your mortgage must be current. Talk to your current lender or another FHA-approved lender to get more details.
Refinancing Fannie Mae and Freddie Mac Loans
Fannie Mae and Freddie Mac are rolling out programs to make refinances more accessible to lower-income borrowers. These programs will:
- Provide a savings of at least $50 per month
- Provide an interest reduction of at least 0.5%
- Provide a credit of up to $500 to cover an appraisal if the borrower doesn't qualify for an appraisal waiver
- Waive the adverse market refinance fee of 0.5% for borrowers with a loan balance of $300,000 or less
To qualify, borrowers must:
- Have a loan backed by Fannie Mae or Freddie Mac
- Have a single-family, owner-occupied home
- Have an income at or below 80% of the area median income
- Not have missed a payment in the past six months
- Not have missed more than one payment in the past 12 months
- Not have a loan-to-value ratio above 97%
- Not have a debt-to-income ratio above 65%
- Have a FICO score of 620 or higher
Fannie Mae's program, called RefiNow, started on June 5, 2021. Freddie Mac's program, called Refi Possible, will be starting in August 2021.
Refinancing VA Loans
Borrowers with VA loans may be able to refinance with the Interest Rate Reduction Refinancing Loan (IRRRL) program. This program allows you to get a new VA loan with a low fixed interest rate. No appraisal is required by the VA, but lenders that you work with may require an appraisal. If your house is underwater, you may need to shop for a lender that will move forward without the appraisal. Either way, it’s a good idea to talk to several different lenders so that you get the best deal.
For details on IRRRL, talk to any lender that handles VA loans (your existing lender is a great place to start).
Refinancing USDA Loans
The USDA offers refinance to homeowners who have a USDA mortgage. Its streamlined assist program simplifies the process by not requiring an appraisal for many borrowers. It also doesn't require a credit review as long as the mortgage has been paid as agreed for the 12 months before the refinance.
To find out if you can refinance, contact any USDA Rural Development office through USDA.gov.
If none of the programs above are right for you, you can still try to refinance with any bank or lender. However, it may be difficult, especially if your home is underwater, if your credit is suffering, or if you’ve lost a source of income. In those cases, it’s always worth asking. If you’re not having any luck, talk to HUD-approved counselors and certified consumer credit counselors to get more ideas.