Homeowners often find it difficult to refinance after a financial crisis and housing downturn. 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 loans.
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. There's an exception if you’re moving from an adjustable-rate mortgage to a fixed-rate mortgage. 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 additional programs and changes to existing programs.
MHA also offers the Homeowner's HOPE Hotline. It's staffed by HUD-approved counselors, and borrowers can call 24/7 (888-995-HOPE).
Refinancing FHA Loans
The Federal Housing Administration (FHA) also offers a refinancing program for homeowners with FHA loans. The Streamline Refinance Program allows you to refinance home loans, including underwater mortgages.
You can get the transaction done with very little documentation. You must already have an FHA loan to qualify for a streamlined refinance, 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
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, is starting in late 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 one. You may need to shop for a lender that will move forward without the appraisal if your house is underwater. Either way, it’s a good idea to talk to several different lenders so you can find the best deal.
Talk to any lender that handles VA loans for details on IRRRL. Your existing lender is a great place to start.
Refinancing USDA Loans
The USDA offers refinancing to homeowners who have USDA mortgages. 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 leading up to the refinance.
Contact any USDA Rural Development office through USDA.gov to find out if you can refinance.
You can still try to refinance with any bank or lender if none of the programs above are right for you. It may be difficult, however, 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. Talk to HUD-approved counselors and certified consumer credit counselors to get more ideas if you're not having any luck.