High Ltv Refinance Option And Freddie Mac Enhanced Relief Refinance
High loan-to-value mortgage loans are those in which the amount owed on the mortgage is nearly equal to or exceeds the home’s appraised market value. These high LTV loans are considered high risk to lenders since a default or nonpayment by the borrower could result in the lender losing money if the bank forecloses and sells the home for less than the loan amount given to the borrower.
Unfortunately, Fannie Mae and Freddie Mac have temporarily suspended mortgage loan refinances under the high loan-to-value programs. All high LTV refinances must have had their applications dated on or before June 30, 2021, and must be purchased or securitized on or before Aug. 31, 2021. Historically, these Fannie Mae and Freddie Mac programs were designed to replace theHome Affordable Refinance Program , which expired on Dec. 31, 2018.
HARP was set up to help homeowners who could not take advantage of other refinance options because their homes had decreased in value. Its goal was to improve a loans long-term affordability to help prevent people from losing their homes to foreclosure. Only mortgages held by Fannie Mae or Freddie Mac were eligible. Still, they also had to have a loan origination date on or after Oct. 1, 2017, and borrowers had to be current on their payments.
Can I Refinance An Fha Loan
Probably. But how you refinance depends on your circumstances. Your three options are:
Conventional refinance
If you have an FHA loan, you may be able to refinance and convert it into a conventional mortgage. With a conventional refinance, you can shorten your loan term and potentially shed private mortgage insurance . You could even refinance from an adjustable-rate to a fixed-rate mortgage.
Many homeowners opt for a conventional refinance because there are no mortgage insurance premiums if youve built 20% equity in your home.
Conventional refinance eligibility requirements:
- At least 3% home equity in most cases.
- Proof of income with pay stubs, tax returns and W2s or 1099s.
- Ability to pay closing costs, including a home appraisal.
FHA Streamline refinance
If youve made at least six monthly payments and your loan-to-value ratio is at most 80%, you may be eligible for an FHA streamline refinance. Since the original home loan was FHA-insured, lenders may feel more comfortable refinancing the loan.
You can typically expect less paperwork, less scrutiny about your income and looser credit requirements than conventional loans. Depending on how long youve had the loan, you might also be able to skip the home appraisal. Streamline refinancing can lower your interest rate and monthly payment, but youll still need to make annual MIP payments.
FHA streamline refinance eligibility requirements
Cash-out refinance
You can choose a conventional or an FHA cash-out refinance.
What Is A Conventional Loan
A conventional loan is a mortgage that is not guaranteed by a federal agency such as the FHA. Since conventional loans dont offer lenders the guarantee that the loan will get paid, they often have stricter requirements compared to FHA loans. Despite that fact, the majority of home buyers use conventional loans to purchase a home. In 2020, 69% of new houses sold using a conventional loan as the source of financing.
Usually, if a person is interested in applying for a conventional loan, they need to make a down payment of at least 3% and have a credit score of at least 620. The more a person can put down, the better the terms of the mortgage. The higher a persons credit is, the lower the interest rate. While you can get a conventional loan with a lower credit score, many lenders offer the best rates to people with higher scores.
You might have heard the traditional advice to put down at least 20% of the value of the home when you apply for a conventional mortgage. Generally, making a down payment of at least 20% eliminates the need to pay private mortgage insurance each month.
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How Much Income Do I Need For An Fha Loan
This depends on the cost of the home you plan to buy and how much down payment you have saved up. However, there is no minimum required salary to qualify for an FHA loan.
FHA loans have been approved for an income of less than $1,000 per month. However, you must prove you hold at least two lines of credit. Examples of these include credit cards and auto loans.
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Fha Refinance Loan Requirements And Qualifications
- FHA loan limit – FHA home loans have maximum mortgage limits that vary by state and county.
- FHA property requirements – FHA loans require that the home being refinanced meets certain conditions.
- If an appraisal is required, the home has been appraised by an FHA-approved appraiser.
- The home will be used as the primary residence .
- The home protects the health and safety of the occupants.
- The home protects the security of the property.
- The home does not have physical deficiencies or conditions affecting its structural integrity.
An FHA mortgage may be right for you if your credit does not meet the requirements for a conventional loan, or if you have limited equity in your existing home.Compare mortgage options to learn more, or contact a mortgage loan officer for help deciding which mortgage option is right for you.
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Lender Overlays On The Fha Streamline
Every lender has the option to add their own overlays onto the FHA Streamline requirements. Because the FHA does not fund the loans, the lender has the opportunity to require certain things that the FHA does not. This does not mean that every lender requires this, but a few common overlays include:
- Pulling your credit to ensure that you are still financially responsible
- Checking the values of the homes in your area to determine that they did not drop dramatically
- Verifying your employment with or without verifying your income
It is a good idea to make sure that all aspects of your qualifying factors are in tip top shape before applying for the Streamline program to ensure that you will get approved.
Risks Of An Fha Refinance
- Closing costs. Like a regular mortgage, youre on the hook for closing costs when you refinance your home. These can include appraisal fees, underwriting fees, title services and other costs. You could be on the hook for 2% to 5% of your total outstanding loan, similar to the costs of closing on a traditional mortgage.
- More stringent requirements. If youre refinancing from an FHA loan into a conventional loan, you might have higher standards to meet. For instance, your debt-to-income ratio should be 50% or lessbut the lower your DTI overall, the better chance you have of getting the best terms. Youll also need at least a 680 credit score . If you move to another FHA loan, the requirements might not be as strict, but youll still need to prove your creditworthiness.
- Potentially higher payments. Refinancing doesnt guarantee lower payments. In fact, if you dont get a lower interest rate, you could face much higher payments than what youre paying now. Along with that, refinancing with a shorter term loan means higher monthly payments in order to pay off the mortgage faster. So if you cant afford the jump, refinancing might not work for you.
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Interest Rates And Fees If You Borrow On Amounts You Prepaid
You pay either a blended interest rate or the same interest rate as your mortgage on the amount you borrow. A blended interest rate combines your current interest and the rate currently available for a new term.
Fees vary between lenders. Make sure to ask your lender what fees you have to pay.
You may not have to make any changes to your mortgage term.
You Might Be Able To Refinance Right After Closing
With mortgage rates at historic lows, many homeowners find themselves wondering, How soon can I refinance?
Maybe you just bought a house, or even refinanced recently. But it might not be too soon to refinance again.
Many homeowners can refinance into a lowerrate loan with no waiting period. And others need to wait as little as six months. So theres a good chance youre eligible to refinance at todays low rates.
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Types Of Cashout Refinance Loans
There are three main cashout refinance options homeowners can pursue:
- Conventional loans: A conventional cashout refinance allows you to borrow up to 80% of your homes value with a minimum credit score of 620
- FHA loans: An FHA cashout refinance allows you to borrow up to 80% of your homes value. Youll have to pay upfront fees that are financed into the loan, as well as an annual mortgage insurance fee just like you would on any other new FHA mortgage. A credit score of at least 600 is typically required
- VA loans: A VA cashout refinance lets you borrow up to 100% of the homes value, though many lenders cap the LTV at 90%. VA cashout refinance loans charge upfront fees that are financed into the loan, unless you are a veteran with a servicerelated disability
The right type of cashout refinance loan for you will depend on your current mortgage and what youre able to qualify for.
Considering A Refi Talk To A Mortgage Lender
Even if FHA rates are lower than conventional rates, it may not always be in your best interest to refinance into another FHA loan. A licensed loan officer can help you evaluate the nuances of FHA refinances and help you identify your best financial solution.
To see if a conventional loan refinance makes sense for you, speak with a Pennymac loan officer or apply online today.
*By refinancing your existing loan, your total finance charges may be higher over the life of the loan.
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Is A Refinance The Right Move For You
Coming out of mortgage forbearance can be financially challenging, especially if youre still catching up after a layoff or reduction in income.
Refinancing your home can ease the burden as you rebuild your finances, and it can provide some breathing room as you navigate the continued uncertainty of the pandemic.
Lower monthly payments mean more cash available for an emergency fund or unexpected expenses. Plus, you may be able to roll your closing costs into the loan if you dont have much cash on hand, which lowers the barrier to entry.
But refinancing isnt right for everyone.
If you feel youre still on shaky ground because of the pandemic, you may want to explore a forbearance extension or other forbearance options through your current lender.
The strongest refinance candidates also have good credit and at least 20% equity in their homes, so consider your overall financial profile.
If you recently purchased a home with a low down payment or your credit took a hit due to a financial hardship, it might be better to focus on raising your score and gaining more equity before trying to get a new loan.
You Wont Get Cash Immediately
Similar to when you buy a home, you must submit to underwriting and appraisal processes before your lender approves your refinance. Even after you close, the Truth in Lending Act requires your lender to offer you 3 days to cancel the loan if you have a change of heart, and you wont get your cash until 3 5 days after closing. If you need money immediately, a cash-out refinance may not be the right solution.
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What Do I Have To Do
Because there is no required credit or appraisal, you won’t have much paperwork to complete. You may have to prove whether you’re occupying the property or not and that you’ve made at least six payments on your existing loan.
You’ll also have to be able to show that your monthly payment will be lower with the new loan, or that your loan term is shorter. It’s possible you’ll have to show that your reduction in interest rate plus MIP rate is at least 0.5% for a fixed-to-fixed refinance. The amount of rate change varies depending on if you’re going from a Fixed to ARM, ARM to Fixed or ARM to ARM. Talk with your Home Lending Advisor to learn more.
Refinow And Refi Possible
On June 5, 2021, Fannie Mae began to offer low-income mortgage holders a new refinance option through a program called RefiNow, meant to reduce their monthly payments and interest rates. Beginning in late August 2021, Freddie Mac will begin offering the exact same program, which is called Refi Possible. In order to be eligible, homeowners must be earning at or below 80% of their area median income .
Fannie Mae’s RefiNow program offers several benefits for homeowners. First, it requires a reduction in the homeowners interest rate by a minimum of 50 basis points and a savings of at least $50 in the homeowners monthly mortgage payment. Second, Fannie Mae will provide a $500 credit to the lender at the time the loan is purchased if an appraisal was obtained for the transaction, and this credit must be passed on from the lender to the homeowner.
In order to qualify for Fannie Mae’s RefiNow program, a homeowner must meet these qualifications:
- Be in a possession of a Fannie Mae-backed mortgage secured by a 1-unit, principal residence.
- Have a current income at or below 80% of the AMI
- Never missed a mortgage payment in the past six months and no more than one missed mortgage payment in the past 12 months.
- Be in possession of a mortgage with a loan-to-value ratio up to 97%, a debt-to-income ratio of 65% or less, and a minimum 620 FICO score.
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Are Fha Loans Only For First
No, you do not need to be a first-time home buyer to use an FHA loan. Lower credit score minimums and down payments certainly make FHA loans attractive to first-time home buyers, but current homeowners are eligible, too. In fiscal year 2020, about 83% of FHA purchase loans were made to first-time home buyers â which means 17% went to borrowers who were already homeowners.
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Equity Home Loans Chase Some are more generous such as Tesco Bank which allows up to 20 per cent a year. According to online mortgage broker Trussle, the best fixed rate loans for landlords include a two-year deal priced.
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FHA Loans Apply Online for an FHA Home Loan FHA Online Application. If you wish, we can also secure a no-obligation pre-qualification letter from a lender in your area who will guarantee your loan request and the lowest possible rate . This is a free service available to US citizens above the age of eighteen.
Choosing The Fha Streamline
There are numerous benefits of choosing the FHA Streamline Refinancing, including the following:
- No income verification is necessary
- Your credit does not get pulled again
- You do not need an appraisal
- You can lower your interest rate
- You can get a refund of a portion of the upfront mortgage insurance you paid on the original loan
The FHA Streamline Refinance relies on the fact that you paid your mortgage payments on time. If you are refinancing right at the 6-month mark, your last 6 months worth of payments must be on time. If you have held the FHA mortgage for more than 6 months, you must not have more than one 30-day late housing payment in the last 12 months.
The FHA Streamline loan is most beneficial during the first 36 months that you hold an FHA loan as that is when you can receive the MIP refund. The amount you receive decreases with each passing month. The refund starts at 70% at the 7th month after you obtain the loan and ends at 10% at the 36th month.
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Review Options With Your Mortgage Servicer
Your loan servicer the company to which you make monthly mortgage payments can help you determine whether youre eligible to refinance after forbearance.
Reviewing your options with your loan officer is important, says Jon Meyer, The Mortgage Reports loan expert and licensed MLO. Depending on the circumstances of a forbearance, some servicers may have simply pushed missed payments to the back end. So on a credit report, they dont show as a forbearance.
Before you can refinance, you must have exited your forbearance plan and made at least three consecutive loan payments. If youre eligible to refinance, your mortgage servicer will need to formally release you from forbearance before you can go ahead with the new loan.
If your finances are still tight, on the other hand, your servicer may be able to revise your repayment plan or reduce the monthly payments on your current home loan instead. This is known as a loan modification.
