Effective June 1, 2008 Fannie Mae has revised down payment requirements for conventional, conforming loans that they will purchase or guarantee. The ratio of home loan to value can be a maximum of 97% for loans written through the automated underwriting system known as Desktop Underwriter. The lower ratio of 95% of loan to value is available for conventional conforming loans written outside of the automated Desktop Underwriting system. This new national policy makes low down payment loans available nationally in areas where home   prices were declining. This means that buyers of owner occupied single-family homes will have a consistent national approach when applying for a conventional conforming mortgage.

Housing sales peaked in 2005 and have been experiencing a pricing decline since. The good news is since the correction, prices are beginning to stabilize and Fannie Mae is seeing lower risk of further significant declines. This new down payment policy that supersedes the former “declining market” provisions means home buyers may not need higher down payments. The new policy also helps assure stability, liquidity and affordability for the housing market which should help those seeking mortgage loans.

Fannie Mae also has streamlined refinancing for borrowers whose mortgage balance exceeds the value of their homes; improved pricing for jumbo-conforming mortgages and undertaken a neighborhood stabilization initiative for targeted areas with high home foreclosures. These policies should help further strengthen the housing market’s long-term prospects.

With many adjustable rate mortgages (ARMs) approaching a reset date, and recent interest rate drops, many homeowners have begun to wonder if this is a good time to refinance their mortgage. The answer is not always clear, but answering a few questions will help point you in the right direction. 

1.       Why are you refinancing? 

Whether your goal is to lower monthly payments, consolidate debt, or borrow additional cash, you should consult with a mortgage professional who can calculate if refinancing will meet your needs.  This is a free service that consumers should take advantage of. 

2.       What is the current fixed interest rate versus your upcoming ARM reset interest rate? 

Conventional wisdom says that you should refinance when mortgage rates are 2% lower than the rate you are currently paying on your loan. Refinancing may still make sense if the difference is less than 2%, depending on your specific circumstances, including how long you intend to remain in your home, as well as other variables. Your mortgage professional can help you determine the best course by providing customized individual scenarios. In any event if current interest rates are lower than the rate you are paying, it is certainly worth looking into. 

3.       How long to you plan to stay in your home? 

There are generally fees charged by the lender to refinance a mortgage. In many cases these fees can be absorbed by a slightly higher interest rate when you refinance. If you chose to pay the fees up front and receive a lower interest rate, you should consider how long you intend to remain in your home. If you will not be in your home long enough to recoup that charge, it may not be worth refinancing. For example, if the bank charges a $2,000 fee to refinance and you save $100 per month in mortgage payments, you would need to stay in the home at least 20 months to recoup the cost. These factors are part of the analysis your mortgage lender can help you calculate if refinancing is in your best interest.