Here Are the Top Low Income Refinance Programs

Your financial position has likely changed since you first bought your home. Maybe your income has increased, or maybe you chose to retire. Whatever the changes, there are low income refinance programs available to millions of Americans. Despite the intended demographic for these loans, there are no quotas. That means even Americans earning six-figure incomes may be able to access some of these programs.

What Are Low Income Refinance Programs?

These programs allow families that do not make a lot of money to refinance their loans to get cash, better terms or both. As with home loans, government agencies often create and back these refinance programs. That protects lenders from the risk of defaults and allows them to offer these products with more favorable terms. As a result, homeowners can enjoy lower interest rates, smaller monthly payments, and sometimes even cash-out refinance options.

What Are the Types of Low Income Refinance Programs?

Lower-income families can leverage several refinance programs to take control of their home loans. Not all programs specifically target lower-income families, but they are generally intended for this demographic more than others.

Enterprise Refinance Loan

The U.S. government launched this program in 2021 in partnership with its two mortgage enterprises, Freddie Mac and Fannie Mae. The main goal is to help families struggling with their mortgage payments. There is no guarantee of how long the program will last, and not all middle and lower-income families qualify.

Review the criteria carefully before applying:

  • The original home loan must have a minimum mortgage-to-value ratio of 97% or 95%, depending on the property type.

  • Applicants must provide proof of keeping up with mortgage payments for the past six consecutive months.

  • Applicants must provide evidence of not missing more than one mortgage payment within the past 12 months.

  • Applicants must earn an income of 80% or less than the median in the area.

  • Applicants must have a debt-to-income ratio of 65% or less.

  • Applicants must have a FICO score of 620 or more.

FHA Streamline Refinance

Families with an FHA loan can take advantage of the FHA Streamline Refinance program. It is one of a handful of low income refinance programs that allow homeowners to refinance without traditional barriers, such as a home appraisal. There are some downsides to taking this option, such as no cash-back options and the need for mortgage insurance. Nevertheless, it can often present the best choice for struggling families.

Here are some of the eligibility requirements:

  • The loan must meet net tangible benefit requirements, such as lower interest rates or lower monthly payments

  • The closing date of the original mortgage should be at least 210 days ago.

  • At least six months must have passed since the due date for the first payment.

  • The loan history shows not more than one payment over 30 days late in the past 12 months.

  • The loan history shows no payments more than 30 days late in the last six months.

  • The refinancing program is only available for FHA loans.

USDA Streamline Refinance

The USDA Streamline Refinance program helps families with a rural development loan lower their interest rates. It does not require an appraisal, credit check, or income verification. That said, some trade-offs come with this type of program. Unlike other low income refinance programs, applicants pay a 1% upfront fee and can only refinance once every 12 months.

Here are some of the eligibility requirements:

  • The new loan amount must be equal to or less than the unpaid principal balance on the existing loan, plus allowable fees and costs.

  • The property must be the applicant's primary residence.

  • You must live in the home for at least 12 months before you can refinance.

  • Your current mortgage must be a USDA Section 502 Direct or Guaranteed Loan.

  • You must have made 12 months of on-time payments before you can refinance.

  • You must receive a benefit from the new loan, such as a lower interest rate, a lower monthly payment, or a shorter loan term.

VA Streamline Refinance

The Department of Veterans Affairs offers VA Streamline Refinance, also called the Interest Rate Reduction Refinance Loan. High-ranking military positions can pay six figures, but most military persons make well below the 2021 median income of $70,784. That makes the IRRRL one of the best low income refinance programs for eligible persons from a military background.

According to the VA, eligible persons must meet these three criteria:

  1. Have an existing VA-backed loan

  2. Have proof that they live or used to live in the home covered by the VA-backed loan

  3. Must use the IRRRL to refinance the existing VA-backed home loan

Reverse Mortgage

Ageism, disability and voluntary retirement can severely limit the income earned by seniors. Consequently, older adults often turn to a reverse mortgage to reduce mortgage-related payments for the rest of their lives. Unlike other low income refinance programs, this option allows persons 62 or older to use their home equity as collateral. Applicants can delay loan repayment until moving out of the home, selling it or passing away.

With a reverse mortgage, borrowers can choose to receive a lump sum, monthly payments, or a line of credit. The only caveat is that if borrowers die, sell the house, or move out before loan repayment, they or the estate will have to repay the loan plus interest and fees.

Short Refinance

This is one of the best low income refinance programs for managing the risk of foreclosure. The goal of a short refinance is to help low-income borrowers keep their homes. Borrowers who complete a short refinance will have a new loan with more favorable terms, such as a lower interest rate or smaller monthly payments. This makes the monthly payments more affordable.

Review the criteria below:

  • The home's value must have decreased since the owner took out the original loan.

  • The borrower must be current on their mortgage payments.

  • The borrower must have a good payment history

Do You Have More Questions About Low Income Refinance Programs?

Refinancing a mortgage is relatively simple once you find the right program and a suitable lender. However, it can take in-depth research and a review of your finances to determine which of the many low income refinance programs is right for you. Contact FHA Insider for more information.