Can I Refinance?

If you’re asking yourself this question, there is probably a reason why you didn’t refinance over the last 18 months – income or job issues, credit complications, or declining home values. There is not a lot that you can do about the first two factors; you either have a job or you don’t, and your credit is OK or it isn’t.

However, the home value issue has been addressed by Fannie Mae and Freddie Mac. Simply put, if your loan did not have mortgage insurance when you took it out and it is owned by Fannie or Freddie, you may be able to refinance without mortgage insurance in spite of the fact that your new loan to value may be over 80%. Depending on the servicing lender, the new loan to value may be extended to 105%.

Here’s an example to illustrate:

Original sales price - $300,000

Original loan amount - $240,000

Original loan to value – 80%

Current appraised value - $250,000

Current loan balance - $232,000

Current loan to value – 92.8%

Can you refinance? Yes you can, assuming you currently have a Fannie or Freddie loan. If you’re not sure if one of the agencies owns your loan, click here to find out: Fannie or Freddie

Fannie and Freddie each have their own name for the program; the FNMA DU Refi Plus and the FHLMC Relief Refinance Open Access. Other than the absence of mortgage insurance on loans over an 80% loan to value, the rest of the process is just like any other loan. You will need to qualify for the loan, so a credit report will be run, income and asset documentation will be required, and an appraisal will be obtained to establish the new loan to value.

The program is for rate and term refinances only; in other words, no cash back is allowed over $250. Do you have a second mortgage or home equity line of credit? You can still refinance the first and re-subordinate the second or line to the new mortgage. Depending on the lender, there may be no limit to the new combined loan to value.

Referencing the example above, if you had a second mortgage of $50,000 and that lender agreed to re-subordinate the debt to the new loan, you may be able to refinance the first mortgage in spite of the fact that your combined loan to value is nearly 113%. Own rental or vacation property? You can refinance these loans using this program, too.

You do not need to go through your servicing lender to take advantage of this program. You can use any lender or broker as long as it originates Fannie Mae and Freddie Mac loans. Interest rates are still pretty good; mid to low 4’s for fixed rates, mid to low 3’s for ARMS. It may take some time for home values to recover, but these rates and this program will not be available forever. Take some time to look into it. You may be happy you did.

Editor's note: Steve Bozick is a licensed mortgage loan originator in Redmond, license number MLO 91676.