The onset of the coronavirus pandemic caused the government to take quick action to prevent economic turmoil. The Federal Reserve slashed interest rates to help encourage lending in the face of economic uncertainty. In turn, mortgage rates crashed to historic lows and have hovered near there ever since. Rock bottom mortgage rates are incredible for current homeowners because they provide an opportunity to refinance their existing mortgages. However, not all homeowners have been able to take advantage of this opportunity. Lenders have been very selective with their mortgage refinance requirements. Fortunately, it looks like good news is on the horizon and more homeowners will be able to refinance their current home loans.

Mortgage Refinances by the Numbers

Over the past year, the number of mortgage refinance applications have increased dramatically. It makes tremendous sense that homeowners would want to refinance their mortgage at a lower rate. Reducing the rate on your mortgage can save you on your monthly payments. It can also save a large amount of money on the life of your loan. As of late, mortgage refinance applications have started to decline. It’s important to note that declining applications is not an indication that people do not want to take advantage of lower rates. Rather, it is an indication of strict standards by lenders.

Mortgage lenders have become more selective in the recent months. The tightening of these loans is due to a rise in home loans and a hyper focus on pristine credit for payments. The research shows that lenders are increasing their standard for FICO scores. What would have been accepted today is not cutting it for many lenders who now deem those people as a credit risk. The coronavirus peaked concerns regarding if applicants would be able to afford their mortgages. The research cites an applicant who was denied, but told they would have been accepted if they applied a year earlier. Lenders are being more strict to stay on the safe side in the midst of a pandemic. 

Opportunities on the Horizon for Mortgage Refinance

Although mortgage lenders have become increasingly more selective, there is still hope for home loaners who would get denied. Fannie Mae and Freddie Mac are making moves to create opportunities for higher risk borrowers who would get denied a loan. The Urban Institute has brought light to how the low interest rates of the pandemic have not benefited everyone. Data shows that mortgage lenders making their requirements more strict has had repercussions. Low credit homeowners or people with a high loan to value ratio are likely to get declined. In spite of this, all hope is not lost. Fannie Mae and Freddie Mac have curated a plan for people denied the opportunity to refinance their mortgage. 

The plan is a new refinancing option for homeowners with comparatively worse credit. The Federal Housing Finance Agency (FHFA) says that the new refinance option can save between $100 and $250 a month. To qualify, an applicant must have a GSE-backed mortgage and can not have missed a payment in the past 6 months. In addition, they could have not missed more than one payment in the past year. The application also has income requirements, saying that the applicants income must be at or below 80% of the median. The plan requires a lender to provide a minimum reduction in the monthly mortgage payment of $50. It also requires the lender to decrease the borrower’s interest rate as well. This will help those that have been excluded from refinancing to refinance their mortgage and take advantage of lower rates.

Final Thoughts

Refinancing your mortgage at a lower rate than your current loan is a no-brainer. It can save you money on your monthly payments. Even better, it will save tens of thousands of dollars over the life of your home loan. The new program from Freddie Mac and Fannie Mae has the future looking bright. It might open the refinance door for many who have been excluded up to this point in time. That is fantastic news for many homeowners around the nation. If you are a homeowner who will benefit from new requirements and would like to try and refinance your loan, contact us! We offer a free refinance qualifier to see if you are eligible. 

However, even if you are not able to take advantage of this program, there is hope. You can potentially still refinance in the future. Even if your FICO score is not up to your current lender’s standards, you should contact us! Peoples Choice Mortgage works with hundreds of lenders who all have different lending requirements. You may not meet requirements of the lender you previously spoke with. This does not mean that there is not a lender out there for you. Even if our lenders do not work out for you, we can still help you with your credit enhancement journey. FICO scores are not written in stone. With the right actions and some time, they can be turned around. We would love to find out your financial situation and see if we can help. We want to help provide you the tools you need to get to where you can eventually refinance your mortgage.