Freddie Mac Loan Options & Refinance Programs - Avoid Foreclosure
A friend of mine that works at Freddie Mac sent me an email with the following useful information. It has great information on when it is worth while to refinance even if you are not in trouble but just want to reduce your rate. I think the hardest qualification for a lot of people is the LTV not exceeding 105%. Also, if you don't have 20% in equity you may have to pay PMI which may actually increase your payment.
So many of my friends / family have asked me about the refinancing options available right now. I can tell you, if your loan is owned by Freddie Mac, we have created a refinance program for our Lenders that's great & easy to do if you qualify. The first thing you need to do is see if Freddie Mac owns your loan. You can do this by going to: http://www.freddiemac.com/avoidforeclosure/plan.html
If Freddie owns your loan, and you meet the criteria, then call your Servicer (who ever you make your monthly principal & interest payments to). Basically, the criteria states that you:
- Cannot have any late payments over the last 12 months
- Your loan to value (LTV) does not exceed 105%. What this means is that if your home is worth $200,000 (based on current market rate values) and you owe $150,000, then your LTV is 75% and you're OK. If your home is worth $200,000 and you owe $215,000, then your LTV is 107.5% and you don't qualify.
- The loan that you have right now was originated before March 4, 2009.
If you meet the criteria above, and want to refinance, call your servicer and say that your loan is owned by Freddie Mac and that you want to do a rate/term refi under Freddie Mac's Relief Refinance Program. Tell them that you have not been late on your payment in the last 12 months (a requirement for the program) and that you're OK with only allowing $2500 to be rolled into the closing cost. (FYI: We do not allow for cash out refi loans under this program, so we capped the amount of cash that can be rolled into the principal balance to $2500. Basically, what that means is that you can only roll $2500 of the closing costs into the balance of your loan.) Typical closing costs can run over $2500 and are things like: - origination fee (sometime up to a point). Estimate about $1500 - $3000 for this
- application fee. Estimate about $200-500 for this. Some lenders charge it, and some don't.
- Title insurance. About $600
- Escrow / Settlement. About $400
- Recording fee. About $75
- Tax fee: About $75
- Appraisal fee: $100-$400 depending on what type of appraisal is needed. This is important, ask your loan officer if they have a Freddie Mac provided a HVE (Home Value Estimator) appraisal. If Freddie was able to provide this, then you DO NOT need to pay an appraisal fee as your Lender will use the value that Freddie Mac provided to them. In some instances, Freddie cannot pull HVE appraisals, so it's not a guarantee that your Lender has this information / value from us.
- Underwriting fee. About $450. This one is questionable. Under the Relief Refi program, Freddie has said that our lenders DO NOT have to re-underwrite the loan. However, we've been hearing that some lenders are still doing it (for whatever reason).
Ask your loan officer for a Good Faith Estimate (GFE) which will show the costs and final amount due at settlement. Plan to have to pay ~$4000 - $5000 to refinance. But, keep in mind that you can roll $2500 of the costs into the balance (if you want, totally up to you.)
Rule of thumb, refinancing is a good idea if you're reducing your interest rate by 50 basis points. Example, if you have a 6% rate now and can get a 5.5% or below.... good idea. Also, think about the time you plan on staying in the home. If you pay $4000 in closing and save $200 per month by refinancing, then it takes 20 months to break even ($4000 / $200 = 20 months). Obviously, the name of the game is to get your closing costs down and increase your monthly savings (which is done via the rate). So if you pay $3000 in closing costs and save $250 per month, then it only takes 12 months to break even. You get the picture.
One important thing... if you qualify for this program, then your Lender does not have to re-underwrite your loan, meaning that you are qualified 'as is' no matter what your current financial situation is or if someone in your household has had a change in employment. The caveat is that if your principal & interest payments increase more than 20% with the new loan, then your lender WILL need to re-underwrite the loan. This typically occurs when someone has a teaser ARM with a really low rate and is now moving into a fixed rate. Many of the ARMS are set to adjust in the next year or 2, so you will need to determine if it's worth it to you to go from an ARM that will adjust in the near future to a fixed rate loan.
Here's some info about the Relief Refinance Program. Read through it and let me know if you have any questions:
http://www.freddiemac.com/sell/factsheets/relief_refi.html
Also, as an FYI: many people falsely believe that Freddie / Fannie only buys 'conforming loans' where the balance of the loan doesn't exceed $417,000. We actually started purchasing loans from our Lenders in high cost areas last year and the loan balance can go up to $729,000 in certain metropolitan areas. So, it doesn't hurt if you have a higher balance loan to check and see if Freddie Mac owns your home.
BTW - rates increased slightly today. I'm seeing 4.875% with a 1% origination point.
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