BOULDER – If you are considering refinancing your home mortgage in the near future, good news: Fannie Mae recently updated several parts of its Selling Guide, which includes eliminating the continuity of obligation policy. Read on to see what this means for you.
Continuity of obligation required at least one of the borrower(s) on an existing mortgage to also be a borrower on a new refinance transaction. It was introduced during the financial crisis in 2008 to ensure that buyers acquiring new properties were properly qualified to do so (by meeting underwriting and eligibility requirements). Now, Fannie Mae is loosening its guidelines to allow someone who is not on the existing mortgage to be added to a home’s title and refinance the mortgage into their name, as long as they qualify based on income, credit, assets and type of occupancy. The existing borrower is not required to be on the new loan.
The bottom line: This will create more opportunities for those to refinance without having to be on title for at least six months prior to the refinance. How will this be accomplished, exactly?
Well, the old policy limited who could be added as a new borrower on a refinance transaction to those who had already been on the home’s title for at least six months. Now that those requirements are gone, a new borrower could refinance in a range of scenarios. Consider the following:
Let’s say you have a family home that you want to transfer title/mortgage to another family member. With Fannie Mae’s new guideline, you simply could do this without having the new borrower on title for at least six months. Furthermore, the existing borrower could drop off completely. The new borrower would still have to qualify, and most importantly, have to make sure occupancy requirements are met. By transferring your home’s title to a qualified family member, you can avoid doing a full purchase transaction, simplifying the process and saving you time and money.
Avoid short sales
If a homeowner is experiencing financial hardship and at risk of losing their home, another family member, friend, or significant other could refinance the home into their name. The current borrower could drop off the mortgage and avoid future late payments/possible short sale.
Refinance in someone else’s name
With rates as low as they are today, if the homeowner could benefit from refinancing to a lower interest rate but has credit or debt-to-income issues and is unable to refinance, a family member or significant other could transfer title and refinance in their name, as long as they qualify.
It’s important to note that the new guidelines only apply to rate and term refinances, not cash-out refinances.
With Fannie Mae relaxing their guidelines and the potential for lower interest rates, it’s a great time to refinance.
Michaela Phillips is the Vice President of Mortgage Lending at Guaranteed Rate, Inc., the 8th largest retail mortgage company in the country. Since entering the mortgage industry in 1994, she’s consistently been a top producer. Being a VP at Guaranteed Rate offers many advantages to her and her clients including unparalleled customer service, efficiency, and most importantly competitive rates. Contact Michaela via e-mail at [email protected]. NMLS: 312874.