What You’ll Learn
New ways to refinance your mortgage (even if you’ve previously been denied)
How lenders determine refinance-creditworthiness
Why you should refinance with Better Mortgage
2 million Americans will soon have access to loan refinancing thanks to Fannie Mae’s RefiNow™ program. On June 5, 2021, Better Mortgage will be one of the first lenders to make RefiNow™ refinances available to the public. This is great news for borrowers who were previously denied a mortgage refinance, due to high debt to income ratios (DTI), prohibitive closing costs, or because of a late mortgage payment made within the last 12 months.
The historically low-interest rates triggered by the COVID-19 pandemic prompted a refinancing frenzy the likes of which hadn’t been seen since 2003. But for many of those suffering financial hardship, being unable to refinance a loan to reduce their monthly payments is especially frustrating. As it’s our mission to make homeownership more accessible for all Americans, Better Mortgage is thrilled to offer the RefiNow™ program to customers.
What does refinancing your mortgage mean and why should I consider it?
When you refinance a mortgage, a lender pays off the remaining balance on your original loan and creates a new loan. Refinancing for a lower interest rate is a popular way to lower your monthly mortgage payments and pay less interest over time. (It’s safe to say that many people who refinanced in 2020 did so because of the drop in interest rates.) Lenders usually offer homeowners with higher credit scores better interest rates, so if your credit score went up refinancing can help bring your monthly payments down. If you’re struggling with mortgage repayments, refinancing to extend the length of your mortgage is another way to reduce your monthly costs (since you’ll have more time to pay off the loan, you can pay less each month).
Another reason to consider refinancing at this time is if you have an adjustable-rate mortgage (ARM) with an interest rate that’s gone up. ARMs often start with a low interest rate, but after a set number of years, the rate will adjust (and typically increase). If recent life events didn’t go according to plan, refinancing for a mortgage with a fixed interest rate can be a way to protect yourself from future rate increases and make budgeting easier.
RefiNow™ is specifically designed to reduce monthly mortgage payments so it’s most suitable for homeowners in the situations described above. You can learn more reasons why people refinance here.
How can I save with RefiNow™?
For most borrowers, the goal of a refinance is to reduce the cost of monthly mortgage payments by locking in a more favorable interest rate. Unlike borrowers who opt for conventional refinances, the RefiNow™ program guarantees your mortgage interest rate will be reduced by at least 0.5%. And you won’t need to pay the up-front adverse market refinance fee that’s typically passed on to borrowers. (This fee was introduced by the Federal Housing Finance Agency to help Fannie Mae and Freddie Mac recover some of the expenses incurred due to the economic downturn caused by COVID-19. Fannie Mae and Freddie Mac charge this fee to lenders on mortgage balances at or below $300,000.)
As part of the RefiNow™ program requirements, you will save at least $50 a month on your monthly mortgage payments. However, the program estimates borrowers will save between $100–$250 per month. That’s a saving of up to $3,000 per year.
Eligible borrowers who don’t have the cash to close on the refinance can roll closing costs (up to $5,000) into their loan. This amount covers lender fees, points, and prepaid costs (not that Better Mortgage charges lender fees).
And last, you’ll receive $250 cashback when the loan closes. If your home is not eligible for an appraisal waiver, you’ll also receive a $500 credit to cover the appraisal fee.
Am I eligible?
Like any mortgage, there is a range of eligibility criteria you’ll need to meet in order to qualify for RefiNow™. Let’s look at each one by one.
Your existing mortgage needs to be backed by Fannie Mae and the mortgage must be for a 1-unit single-family residence that you live in (aka your primary home).
Check if your mortgage is backed by Fannie Mae here.
The final criteria is linked to your mortgage payment history—if you missed a mortgage payment in the last 6 months (or missed 1 mortgage payment in the last 12 months) you won’t be eligible to apply.
My mortgage isn’t backed by Fannie Mae. Can I still refinance?
Not yet. On August 30, 2021, a new program called RefiPossible will be available for homeowners whose loans are backed by Freddie Mac.
When RefiPossible is launched, eligible homeowners with mortgages backed by Freddie Mac will be able to access the same savings as homeowners who are eligible for RefiNow™.
You can check if your mortgage is backed by Freddie Mac here.
The eligibility criteria for RefiPossible and RefiNow™ is the same except for the FICO score. Homeowners whose mortgage is backed by Freddie Mac must have a minimum indicator score of 620. (A minimum indicator score is similar to a FICO score—it’s the term Freddie Mac uses for the one underwriting score selected by a Loan Product Advisor and it represents the overall credit reputation risk for the transaction.)
Which refinance option will I qualify for?
The introduction of RefiNow™ and RefiPossible means there is now a range of refinancing options available to borrowers with qualifying incomes, low credit scores, low equity in their home, or a high DTI.
|Better Mortgage conventional loan refinance*||RefiNow™ Available through Better Mortgage||RefiPossible Available through Better Mortgage (in Aug 2021)|
|Mortgage backer||Any||Fannie Mae||Freddie Mac|
|Home type||Any residence, excluding manufactured homes||1-unit Primary residence||1-unit Primary residence|
|Borrower income||Enough to maintain 49% DTI||≤80% of the Area Median Income||≤80% of the Area Median Income|
|Mortgage payment history||0 late mortgage payments of 60+ days in the past 12 months||0 missed in the past 6 months
≤1 missed in the past 12 months
|0 missed in the past 6 months
≤1 missed in the past 12 months
|Credit score||≥620 credit score||≥620 FICO score||≥620 Minimum Indicator score|
|Appraisal required||You may be eligible for a waiver||Maybe. If you’re ineligible for a waiver, the lender will provide a credit up to $500.||Maybe. If you’re ineligible for a waiver, the lender will provide a credit up to $500.|
|Closing costs||Closing costs can be rolled into the loan||Up to $5,000 in closing costs can be rolled into the loan||Up to $5,000 in closing costs can be rolled into the loan|
*There may be some exceptions to these requirements for certain transactions. A Better Mortgage Loan Consultant can give more detailed information tailored to your unique refinance needs.
Better Mortgage offers conventional and RefiNow™ mortgage refinancing. From August 30, 2021, Better Mortgage will also offer RefiPossible mortgage refinancing. These 3 refinance loan types may help you lower your monthly mortgage payment. If you’re not eligible for one of these loan types, you may be able to refinance with a lender who offers HomeReady refinances or the Federal Housing Authority’s (FHA) Simple Refinance or Streamline Refinance program. These refinance programs aren't offered by Better Mortgage.
|HomeReady** (Borrowers may be required to complete a 4–6 hour homeowner counselling course)||FHA Simple Refinance**||FHA Streamline Refinance** (There are 2 ways to qualify for this type of refinance. With either option, the refinance must reduce your loan term, your interest rate, or both.)|
|Mortgage backer||Fannie Mae||The existing mortgage must be an FHA mortgage||The existing mortgage must be an FHA mortgage|
|Home type||1-unit principal residence, including eligible condos, co-ops, PUDs, and manufactured housing||Primary residences and HUD-approved secondary residences||Primary residences, HUD-approved secondary residences, or nonowner-occupied properties|
|Borrower income||<100% of the Area Median Income (for low-income census tracts there are no income limits)||N/A||N/A|
|Mortgage payment history||0 late payments in the past 6 months
≤1 late payments in the past 12 months
|0 late payments in the past 6 months
≤1 late payments in the past 12 months
|0 late payments in the past 3 months
≤0 late payments in the past 12 months
|Loan-to-value ratio||≤97%||< 97.75% of the adjusted property value
<85% for HUD approved secondary residence
|Credit score||≥620 credit score||>580 credit score||N/A Existing loan
Payment history is used
>580 credit score
(some lenders sccept a credit score as low as 550)
|Appraisal required||Lenders may have their own criteria for waivers||Yes||Maybe, it depends on the lender’s needs
No. You are even able to refinance if you owe more than the home is worth.
|Closing costs||Closing costs may be rolled into the loan, depending on the lender||Closing costs may be rolled into the loan, depending on the lender||You can roll closing costs into the loan if the property’s equity can cover the additional amount|
**A variety of lenders offer HomeReady and FHA refinance loans, but their borrower evaluation criteria may vary. Better Mortgage does not offer these types of loans.
If you have an FHA loan and your home has not risen in value (or the value of the mortgage exceeds the value of the loan), an FHA Streamline Refinance may be your best option. If you have an FHA loan and the value of your home has increased, or you want to keep your out-of-pocket costs very low, you might consider an FHA Simple Refinance.
Why refinance with Better Mortgage?
We keep your closing costs low because we have zero fees and commission. We’re able to do this because we’ve built technology to streamline the entire refinance process from start to finish. We cut out the middlemen and automated many of the processes that used to be done manually. This makes it less expensive for us to create the loan and we can pass these dollar and time savings to you. We close 10 days faster than the industry average—our closing time averages 32 days—which means your RefiNow™ savings will be in your pocket sooner. We’re a tech-powered company with human-powered support and our experienced Loan Consultants are available to help you 7 days a week between 9 am–9 pm ET. Plus you can text, call, or email us anytime.
In as little as 3 minutes, Better Mortgage can show you how much RefiNow™ can reduce your monthly mortgage payments and match you with a loan consultant to talk through your options.