Do You Qualify for a Homeowner Refinance Program?

Let me introduce Paul and Jane who are interested in a homeowner refinance program. Paul and Jane are both teachers; Paul at the local high school and Jane works at the elementary school. They have always paid their bills when they were due and are not behind on their mortgage payments. They had hoped to find a homeowner refinance program that would allow them to obtain a lower rate of interest and more affordable payments. However, due to their home’s value, which has decreased, they were unable to do so.

Taking the new plan into consideration, can Paul and Jane qualify for a homeowner refinance program? This is quite possible because they:
1) own a home that is from one to four units, 2) Fannie Mae or Freddie Mac owns or guarantees the loan on their home, 3) Their mortgage is paid up to date and they have not been late on a payment within the last year and 4) Paul and Jane’s mortgage is not over 125% of their home’s value. They owe a mortgage of $300,000, but the value of their home dropped in recent months to $292,000. A homeowner refinance plan may help them to obtain a lower interest rate.

How will Paul and Jane know if their loan is a Freddie Mac loan or a Fannie Mae loan?
The best way is to find a contact for these two companies and request an online form to fill out and send in to see if your home loan is guaranteed by or owned by either of these. They can be found at Loan Look Up.

How do they know if they can refinance using this new program?
If your mortgage (a first mortgage) plus refinancing costs is not more than 125% of the present market value of your home, you are considered eligible. This value will be assessed after you apply for refinancing.

What if they have a first and a second mortgage? Will they still be eligible for refinancing under this plan?
Only the first mortgage is eligible for refinancing if it meets the criteria of being less than 125% of the property value. The payments on the first mortgage would have to be affordable for you and the second mortgage holder has to remain second.

Are Paul and Jane going to be able to pay less than what they owe on their loan?
The refinance program does not change the total amount you owe for the home. It does however; reduce the amount you pay out until the loan is paid in full due to the lower interest rate and the fact that it is a fixed rate.

So, refinancing will lower their payments?
This depends on whether the interest rate you are paying presently is higher than the existing market rate. If so, there should be a drop in the amount of the payments right away. When you paying just the interest rather than the principle amount borrowed or if you have a very low rate of interest, you probably will not see a significant decrease. Furthermore, refinancing to a fixed rate that is lower can save money over the years until the loan is paid.

How do I know what the new rate of interest is going to be?

Your lender will let you know at the refinance meeting according to the rates that are in place at that time. The fees and associated points will be the deciding factor.

When is the best time to apply?
Apply as soon as possible and consult with your local counselor to see if you are going to qualify.

For more information about homeowner refinance programs, please visit our “Find a Local Counselor” page, complete the form and we’ll be happy to assist you further.