Which Refinance Program is Right for You?

Most loan officers will direct you toward either Rate/Term or cash-out refinance programs without discussing other available options. The programs below serve borrowers with low to moderate incomes. These programs can lower your interest rate and reduce your mortgage insurance premium.

Feature	Rate/Term Refinance	Cash-Out Refinance
Maximum LTV / CLTV	Up to 95% for a 1-unit primary residence	Up to 80% for a 1-unit primary residence
Primary Purpose	Change interest rate or loan term without adding new debt	Access home equity by borrowing more than the existing balance and receiving cash
Loan Amount / Cash Back	Pays off existing first lien. Cash back limited to ≤ $2,000 or ≤ 2%	New loan exceeds existing balance; cash limited by LTV/CLTV
Income Limits	No income limits	No income limits
Credit Score Minimum	Typically 620, varies by LTV/risk	Typically 620, varies by LTV/risk
DTI Limit	Varies (typically ≤ 45–50%)	Varies
Property & Occupancy	Primary residences, second homes, and investment properties (LTV limits vary by occupancy)	Primary residences, second homes, and investment properties
Mortgage Insurance (MI)	Required if LTV > 80%	Required if LTV > 80%
Financing Closing Costs, Escrow, and Prepaids	Can be rolled into the new loan amount	Can be rolled into the new loan amount
Current Loan Must Be Owned by Agency	Not required	Not required
Payment History Requirement	Standard	Standard
Seasoning Requirement	Standard	Standard
Borrower Benefit Requirement	Not required	Not required
Best For…	Homeowners seeking lower payments, shorter terms, or rate stability	Homeowners needing cash for renovations, debt consolidation, or major expenses

Low to Moderate Refinance Programs

There are special refinance programs for low to moderate income borrowers available through Fannie Mae and Freddic Mac (see below). The "key" to these refinance programs is the household median income.

Feature	Fannie Mae HomeReady (Limited Cash-Out)	Freddie Mac Home Possible (Limited Cash-Out)	Fannie Mae RefiNow®	Freddie Mac Refi Possible®
Maximum LTV / CLTV	Up to 97% LTV. CLTV up to 105% with Community Seconds (DU approval required)	Up to 97% for a 1-unit primary residence	Up to 97% LTV	Up to 97% LTV (95% for manufactured homes)
Primary Purpose	Help low-to-moderate income borrowers refinance with flexible underwriting	Help low-to-moderate income borrowers refinance with flexible underwriting and low down payment options	Reduce interest rate and monthly payment (payment reduction required)	Reduce interest rate and monthly payment (payment reduction required)
Loan Amount / Cash Back	Limited cash-out only. New loan ≤ existing loan balance + closing costs + prepaid items	Limited cash-out only. New loan ≤ existing loan balance + closing costs + prepaid items	Limited cash-out; up to $500 back to borrower at closing	Limited cash-out; up to $250 back to borrower at closing
Income Limits	Typically ≤ 80% of Area Median Income (AMI)	Typically ≤ 80% of Area Median Income (AMI)	≤ 100% AMI	≤ 100% AMI
Credit Score Minimum	Typically 620, subject to DU findings and borrower profile	Typically 620, subject to LPA findings and borrower profile	No minimum score required (must have usable credit)	No minimum score required (must have usable credit)
DTI Limit	DU-based	LPA-based	Up to 65%	Up to 65%
Property & Occupancy	Primary residence only; 1–4 unit properties allowed	Primary residence only; 1–4 unit properties, condos, and eligible manufactured homes	Primary residence only; 1-unit property	Primary residence only; 1-unit property
Mortgage Insurance (MI)	Reduced MI coverage requirements	Reduced MI coverage requirements	Standard MI; $500 appraisal credit if appraisal required	Standard MI; $500 appraisal credit if appraisal required
Financing Closing Costs, Escrow, and Prepaids	Included in new loan	Included in new loan	Included in new loan; appraisal credit may offset costs	Included in new loan; appraisal credit may offset costs
Current Loan Must Be Owned by Agency	Not required	Not required	Yes — must be a Fannie Mae-owned loan	Yes — must be a Freddie Mac-owned loan
Payment History Requirement	Standard	Standard	No late payments past 6 months; maximum 1 late payment in last 12 months	No late payments past 6 months; maximum 1 late payment in last 12 months
Seasoning Requirement	Standard	Standard	At least 12 months since origination of the current loan	At least 12 months since origination of the current loan
Borrower Benefit Requirement	Not required	Not required	Must reduce interest rate ≥ 0.50% AND reduce monthly payment by ≥ $50	Must reduce interest rate ≥ 0.50% AND reduce monthly payment by ≥ $50
Best For…	Borrowers with limited equity and qualifying income who benefit from flexible underwriting	Borrowers with limited equity who need flexible down payment sources and meet AMI limits	Low/mod-income borrowers with a Fannie Mae loan who need real payment relief	Low/mod-income borrowers with a Freddie Mac loan who need real payment relief

What is AMI?
Area Median Income (AMI) is the midpoint household income for a specific geographic area, typically calculated at the county or metropolitan statistical area level. Lenders and government-backed loan programs use AMI as a benchmark to determine borrower eligibility and program requirements. Many USDA loan programs, for example, limit eligibility to borrowers with incomes at or below 115% of the area's AMI. FHA loans and other affordable housing programs also reference AMI thresholds to ensure loans serve moderate-income homebuyers. AMI figures are updated annually and vary significantly by location, reflecting regional cost-of-living differences and economic conditions. The area median income for your area can be found on the Fannie Mae (Federal National Mortgage Association) or Freddie Mac (Federal Home Loan Bank) websites.

What is LTV?
LTV stands for Loan-to-Value ratio in mortgage lending. It's a key metric that compares the loan amount to the property's appraised value (or purchase price, whichever is lower). LTV is expressed as a percentage.

Formula: (Loan Amount / Property Value) × 100 = LTV%
Example: If you're borrowing $240,000 to buy a $300,000 home, your LTV is 80% ($240,000 ÷ $300,000).

Why it matters:

Lower LTV = Less risk — Lenders prefer lower LTV ratios because the borrower has more equity in the property.
Higher LTV = Higher risk — Borrowers with LTV above 80% typically need mortgage insurance (PMI on conventional loans, or MIP on FHA loans).
Program requirements vary — USDA loans typically allow up to 100% LTV, FHA loans up to 96.5%, conventional loans often require 80% LTV to avoid insurance, and VA loans allow 100% LTV with no down payment.

LTV directly impacts loan approval odds, interest rates, and whether mortgage insurance is required—making it one of the most important factors in mortgage underwriting.

Rate/Term Refinance
A rate/term refinance allows a homeowner to replace an existing mortgage with a new one that has a different interest rate, loan term, or both. The goal is simple: improve the structure of the loan without pulling cash out. Borrowers often use this option to lower their monthly payment, shorten the loan term, or switch from an adjustable rate to a fixed rate. It can also help remove mortgage insurance over time by reducing the loan balance relative to the home’s value. The key benefit is gaining better loan terms that improve long-term affordability and financial stability.

Cash-Out Refinance
A cash-out refinance lets a homeowner tap into their home equity by replacing the current mortgage with a larger loan and receiving the difference in cash. This option is often used for major expenses such as home improvements, debt consolidation, or other large financial needs. The loan amount is capped by LTV limits, which helps manage risk while still providing access to funds. Because it converts equity into usable cash, it can be a powerful financial tool when used carefully. The main benefit is accessing built-up home equity as cash while keeping a single mortgage payment.

Fannie Mae HomeReady (Limited Cash-Out Refinance)
The HomeReady program is designed for low-to-moderate income borrowers who need flexible underwriting options. It allows qualifying homeowners to refinance with higher LTV limits and expanded income sources, including non-borrower household income. The program also offers reduced mortgage insurance coverage requirements, which can improve overall affordability. Eligibility is typically tied to income limits based on area median income, helping target borrowers who need support the most. The primary benefit is increased flexibility and higher LTV options that make refinancing more accessible for income-qualified borrowers.

Freddie Mac Home Possible (Limited Cash-Out Refinance)
Home Possible is a Freddie Mac program focused on helping low-to-moderate income borrowers refinance with flexible guidelines and low down payment structures. It supports a wide range of property types, including multi-unit homes and certain manufactured housing, which broadens eligibility. Like HomeReady, it applies income limits and offers reduced mortgage insurance coverage requirements. The program is designed to work with borrowers who may rely on alternative income sources or need more flexible qualification paths. The key benefit is expanded eligibility and flexible qualification options that open the door to refinancing for more borrowers.

Fannie Mae RefiNow® (Relief Refinance Program)
RefiNow® is a refinance program for Fannie Mae borrowers who are current on their mortgage but want to lower their monthly payment. It is targeted at homeowners with low-to-moderate incomes who may not qualify for traditional refinancing.

Payment Reduction Required: Borrowers must reduce their interest rate by at least 0.50% and lower their monthly payment by at least $50.
Maximum LTV: Up to 97% of the home’s value.
Eligibility: Must already have a Fannie Mae-owned loan.
Credit & DTI: No minimum credit score required; debt-to-income ratios up to 65% allowed.
Property: Primary residence only, 1-unit homes.
Seasoning: Must have owned the current mortgage for at least 12 months.
Benefit: Provides meaningful payment relief while keeping homeowners in their current mortgage, without requiring additional cash or equity.

Freddie Mac Refi Possible® (Relief Refinance Program)
Refi Possible® is Freddie Mac’s version of a relief refinance program, offering similar benefits for Freddie Mac borrowers who are current on their mortgage and want to lower payments.

Payment Reduction Required: Must reduce interest rate by at least 0.50% and monthly payment by at least $50.
Maximum LTV: Up to 97% of the home’s value (95% for manufactured homes).
Eligibility: Must already have a Freddie Mac-owned loan.
Credit & DTI: No minimum credit score required; DTI up to 65%.
Property: Primary residence only, 1-unit homes.
Seasoning: Must have held the current mortgage for at least 12 months.
Benefit: Helps homeowners lower payments quickly while keeping their existing mortgage, without taking additional cash out.

Difference between HomeReady, Home Possible, RefiNow, Refi Possible, and a Rate/Term Refinance
The key difference comes down to eligibility and purpose:

HomeReady and Home Possible are income-based programs for low-to-moderate income borrowers. They allow higher LTVs, flexible income sources, and reduced mortgage insurance. They are primarily aimed at expanding access to refinancing.
RefiNow and Refi Possible are relief programs for borrowers with existing Fannie Mae or Freddie Mac loans. Their focus is payment reduction rather than expanding eligibility. They allow higher DTI, no minimum credit score, and require that borrowers benefit financially from the refinance.
Rate/Term Refinance is a traditional conventional refinance without income restrictions, designed to improve the loan structure by lowering the rate or changing the term, without cashing out equity.

In short, HomeReady/Home Possible = flexible, income-targeted programs. RefiNow/Refi Possible = relief refinance programs for current agency borrowers. Rate/Term = standard refinance to improve loan terms.