What You Need to Know About RefiNow: A Low-Income Refinance Option

RefiNow was created to help meet the refinancing needs of low- to moderate-income homeowners.

Refinancing a home loan with a slight decline in your interest rate can potentially translate to tens of thousands of dollars in savings over the life of your loan, which is a pretty attractive incentive.

But while refinancing can cut down significantly on the cost of your mortgage, the fees associated can make refinancing unappealing — especially as a lower-income homeowner.

Read on to learn what RefiNow offers to those who qualify.

A Breakdown of RefiNow

The RefiNow initiative is a new affordable mortgage refinancing program from the Federal Housing Finance Agency (FHFA). The goal of RefiNow is to make it easier and less expensive for current homeowners with Fannie Mae loans to refinance their mortgages and take advantage of lower interest rates.

What’s unique about the RefiNow program is that it clears many of the hurdles that homeowners face when refinancing their mortgage loans by removing some of the upfront costs and reducing the financial and credit requirements. Homeowners who might otherwise have not qualified might now be able to do so.

RefiNow Eligibility

While the RefiNow refinance program is a unique and guaranteed way to help save money on their mortgage loans, to qualify, homeowners must:

• Have a Fannie Mae mortgage on your primary residence
• Have a current income at or below 100% of the area’s median income
• No missed payments on your current mortgage in the past six months, and no more than one missed payment in the past 12 months
• Have a mortgage with a loan-to-value ratio of 97% or less
• Have a debt-to-income ratio of 65% or less

Pros of RefiNow

There are several benefits to using RefiNow to refinance your home loan. The pros of using this type of refinance loan include:

A lower interest rate

One of the main perks of the RefiNow program is that the homeowner’s interest rate must be reduced by 50 basis points, or 0.5%, compared to the current home loan rate. In many cases, homeowners who qualify for this type of refinancing may be able to get even larger interest rate deductions.

Reduced monthly payments

The RefiNow reduced interest rate requirement translates to a guaranteed reduction in the monthly mortgage payments for those who are eligible. In some cases, the savings may translate to thousands of dollars each year.

For example, the RefiNow program could save borrowers between $100 to $250 per month, according to the Federal Housing Finance Agency (FHFA). That means the average borrower could save between $1,200 to $3,000 every year.

Savings on up-front, out-of-pocket expenses

Another benefit of the RefiNow program is that Fannie Mae offers a $500 credit on loans that require an appraisal. This credit is offered directly to the lender, which then passes the $500 savings down to the borrower.

As one issue with refinancing involves up-front fees and costs, this reimbursement helps borrowers save upfront on the appraisal cost, making it more feasible for low-income homeowners to afford to refinance their home loans.

Potential Cons of RefiNow

While the RefiNow program can be a valuable refinance option for low-income homeowners, there are also a few potential downsides to the program. These include:

Strict interest rate limitations

The RefiNow program comes with strict interest rate reduction limitations, which can be limiting to some homeowners. As noted, RefiNow requires that the loan must lower the homeowner’s interest rate by at least 0.5%, or 50 basis points, to qualify. Unfortunately, many homeowners’ current loan interest rates are within 0.5% of the prevailing market rate, which means they won’t be eligible to refinance with the RefiNow program. As such, while the 0.5% reduction requirement can lead to big savings for many homeowners, it can also limit the number of homeowners who could qualify.

Strict income limitations

The RefiNow program also has strict income limitations, further limiting the homeowners who qualify. Homeowners who want to take advantage of RefiNow must have an income under 100% of the area’s median income.

The median income can vary significantly from place to place, however — and if a homeowner lives in an area with a very low median income, it could be hard for that individual to qualify.

Only Fannie Mae loans qualify

The only loans that qualify for the RefiNow program are Fannie Mae-backed or secured loans. Homeowners with Freddie Mac-backed loans do not qualify for this program. As such, the program is quite limited in terms of who can qualify for refinancing.

That said, there is a similar refinancing program available for Freddie Mac loan holders. This program, known as Refi Possible, is also available to low-moderate income borrowers.