A winner for those having difficulty refinancing at today’s low interest rates due to insufficient earnings.
PROS (Several)
- Debt-to-Income (DTI) Ratio can be as high as 65% – Example Below (if you like math)
- $500 Appraisal Fee Credit
- Waiver of FHFA’s 0.50% refinance fee
- Up to 97% Loan-To-Value
- Allows one late mortgage payment in 12 months
- 620 minimum credit score
CONS (Few)
- Qualifying Income must be less than 80% of County Area Median Income ($62,080 in IRC)
- Rate & Term Refinance only (no Cash-Out)
- Existing Loan must be owned by Fannie Mae
Key Requirements:
- Must be a 1-unit primary residence
- Interest rate must improve by at least one half of 1.0%
- Monthly mortgage payment must reduce by at least $50
Here’s the point according to Mike Kanuka, Founder and President of Ocean Mortgage Capital, “Fannie Mae just made it much easier to refinance a primary residence mortgage, especially for those whose earnings have reduced because of COVID”.
EXAMPLE:
Assume…
- Existing $200,000 30-year fixed rate mortgage at 4.25% ($1,400/month mortgage payment)
- $450 of other monthly obligations (auto/student loans, credit cards)
- $50,000 of household income yielded a DTI of 45%*:
DTI = ($1,400 + $450) monthly obligations DIVIDED BY: $4,167 monthly income ($50,000/12) = 45%
* Rule of Thumb: DTI should not be greater than 45%
However…
- Income reduces by 20% to $40,000
- Credit score permits a 3.25% refinance ($1,287 monthly mortgage payment) – BUT:
- Loan App declined because DTI is now 52%:
DTI = ($1,287 + $450) monthly obligations DIVIDED BY: $3,333 monthly income ($40,000/12) = 52%
Today with Fannie RefiNow…
- Pre-qualified for a rate reduction from 4.25% to 3.25%
- Income could actually reduce to $32,000 (by 36%) and DTI would still qualify at 65%:
DTI = ($1,287 + $450) monthly obligations DIVIDED BY: $2,666 monthly income ($32,000/12) = 65%
This may be the perfect time to refinance! Take a look at your numbers and talk to an expert.
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