Homeowners looking to change their mortgage terms or reduce their interest rates often turn to home refinance loans. Unfortunately, many homeowners find that their homes have dropped in value or live in an area where home values are stagnant. This often means that the homeowner has lost value in their home, and they do not have enough equity to qualify for a standard refinance loan.
The good news is, for those sitting underwater when it comes to home equity, refinance programs, such as the Freddie Mac Enhanced Relief Refinance Program (FMERR), can offer assistance. Here we take a closer look at the program, including FMERR qualifications and eligibility.
Key takeaways
- FMERR helps homeowners with little equity refinance at lower rates.
- Freddie Mac must own your loan and it must have an origination date after Nov. 1, 2018.
- To be approved, you need a good payment history and an LTV ratio of 97.01% or higher for a single-unit primary residence.
- FMERR has pros like higher LTV ratios and lower rates, but cons like upfront closing costs and limited ARM terms.
What is Freddie Mac Enhanced Relief Refinance (FMERR)?
In areas where the housing market has dropped or remained stagnant, homeowners often find they do not have the equity available in their homes to qualify for a traditional home refinancing mortgage. Created by Freddie Mac, the Freddie Mac Enhanced Relief Refinance (FMERR) program was created to help homeowners with little to no equity in their homes qualify for refinancing. This means that, even with no equity, homeowners can qualify for refinancing at lower interest rates as long as they meet certain other guidelines.
Who qualifies for the FMERR Program?
While home equity is not a requirement for the FMERR program, there are other qualifications that you must meet to qualify and receive loan approval.
1. Loan owned by Freddie Mac
To begin applying for an FMERR loan, Freddie Mac must own your current loan. Because Freddie Mac is taking the risk on this high LTV loan, they limit their program to the loans they originally approved.
For loans owned by Fannie Mae, there is the HIRO program. If you have an FHA, VA, or USDA home loan, a Streamline Refinance loan is your option.
2. Date of loan originations
Your current loan must have an origination date on or after November 1, 2018, to qualify for the FMERR program. In addition, your current mortgage must be at least 15 months old before you can qualify.
3. Loan-to-value (LTV) ratio
Applying for a traditional refinance loan requires a maximum loan-to-value (LTV) ratio to qualify. In contrast, the FMERR has a minimum LTV requirement. For example, you must have an LTV ratio of 97.01% or higher for a single-unit primary residence. In other words, you need to have less than 3% equity in your home to be approved.
3. Debt-to-income (DTI) ratio
Unlike traditional mortgages, there is no maximum debt-to-income (DTI) ratio to be eligible for FMERR refinancing. The new loan is designed to replace an existing loan and often reduces the existing monthly payments. However, lenders must prove a 45% DTI if the payment increases by 20% (this can occur when you switch from an adjustable to a fixed-rate mortgage).
4. Net tangible benefit
The point of any refinance loan is to achieve a benefit, and the FMERR program is no different. Refinancing with the FMERR program must offer at least one of these financial benefits to qualify:
- Lower interest rate
- Reduced monthly payment
- Improvement in mortgage terms
- Change from an adjustable rate to a fixed-rate mortgage
5. Good payment history
Your payment history matters when it comes to an FMERR loan. You must have no 30-day last payments within the past six months and no more than one 30-day late payment within the last 12 months.
6. Credit score
Technically, there is no minimum credit score requirement for the FMERR loan as it is replacing your previous loan with new financing. However, some lenders can establish their own requirements, run a credit score, and have a minimum score requirement.
Should you apply for the FMERR program?
If you are looking to reduce your interest rates or find a mortgage with better terms, then a mortgage refinance is your best option. If you are sitting with little to no equity in your current home, choosing the FMERR program may be your only option.
But what are the pros and cons associated with an FMERR loan?
Pros
- LTV value: Unlike traditional refinancing programs, FMERR allows for refinancing with a much higher LTV ratio and even refinances when you owe more than the current value of your home.
- Save money: A net tangible benefit is a qualification for this program, so you must benefit financially by refinancing. This can be a lower rate, lower monthly payments, and a shorter loan term.
Cons
- Upfront closing costs: As with any mortgage or refinancing, you will be required to pay closing costs on your FMERR loan. This can amount to thousands of dollars, so you will need to budget this expense.
- Limited ARM terms available: While most people choose a fixed-rate FMERR loan, adjustable-rate mortgages are an option but are limited to 5/5, 5/1, 7/1, 10/1, 5/6-month, 7/6-month, or 10/6-month terms.
Refinance your home even when you don’t have the equity
If you are looking to save money or improve the terms of your current mortgage but have limited equity in your current home, a Freddie Mac Enhanced Relief Refinance (FMERR) loan may be the perfect solution.
At Hero Home Programs, we understand how intimidating the home refinancing process can be. Our goal is to help everyone reach homeownership and maintain it at the rates they can afford.
Contact us online today to learn more about how we can help you navigate your home refinancing and find you the best possible rates and programs.
