Freddie Mac Guidelines: Refi Possible Borrower Eligibility

What Is Refi Possible and Who Qualifies

Refi Possible is Fannie Mae's refinance program designed for moderate-income borrowers who want to refinance their existing mortgage. The program has strict income limits tied to your local area's median income.

The key restriction is simple: your qualifying income cannot exceed 100% of the Area Median Income (AMI) where your property sits. This means if the AMI in your county is $75,000, your household income used to qualify for the loan cannot exceed $75,000.

Your lender calculates your qualifying income the same way they would for any mortgage application. They look at your salary, hourly wages, overtime, bonuses, commission, self-employment income, rental income, and other sources. Then they convert everything to an annual figure.

Say you earn $3,500 per month in base salary plus $800 monthly in consistent overtime. Your lender calculates your annual qualifying income as $51,600. If your area's median income is $65,000, you're eligible. If it's $50,000, you're not.

How Lenders Verify Your Income Eligibility

Your lender must use Fannie Mae's official tools to check income eligibility. They cannot rely on HUD's website or other AMI sources, even if those show the same numbers.

For loans processed through Loan Product Advisor (Fannie Mae's automated underwriting system), the system automatically checks your income against the local AMI limits using the income data your lender submitted.

For manually underwritten loans, your lender must use Fannie Mae's Home Possible Income & Property Eligibility tool. This online tool lets them input your qualifying income and property address to confirm eligibility.

The lender uses the same income documentation they require for any mortgage. You'll need recent pay stubs, tax returns, bank statements, and employment verification letters. The difference is they must also verify that your total qualifying income falls within the program limits.

Why Fannie Mae Limits Income for Refi Possible

The income restriction exists because Refi Possible targets moderate-income borrowers who might not otherwise have access to competitive refinancing options. By capping income at 100% of AMI, Fannie Mae ensures the program serves its intended population.

Area Median Income varies dramatically by location. In expensive markets like San Francisco or New York, 100% of AMI might be $120,000 or more. In rural areas, it could be $45,000. The program adjusts to local economic conditions rather than using a national income cap.

This approach recognizes that a $75,000 household income means something very different in Manhattan versus rural Mississippi. The local AMI calculation ensures the program reaches moderate-income borrowers regardless of where they live.

Borrower Continuity Rules

Refi Possible has strict rules about who can be on the new loan. Generally, the same borrowers on your current mortgage must be on the refinanced loan. You cannot add new borrowers or remove existing ones without meeting specific conditions.

The main exception allows removing a borrower if the remaining borrower has made all mortgage payments from their own funds for the past 12 months. Your lender needs documentation proving the remaining borrower handled all payments independently.

Say you and your spouse are both on your current mortgage, but you want to refinance with just your spouse on the new loan. Your lender must verify that your spouse made all mortgage payments for the last 12 months using only their own bank accounts and income sources.

When Borrowers Can Be Removed

Death is the other exception that allows borrower removal. If one borrower dies, the surviving borrower can refinance alone under Refi Possible. Your lender needs a death certificate and other documentation to verify the circumstances.

In divorce situations, you cannot simply remove your ex-spouse from the Refi Possible loan. The remaining borrower must prove they made all payments independently for 12 months before applying. This often means waiting a full year after the divorce to refinance.

At least one original borrower must always remain on the new loan. You cannot remove all original borrowers and replace them with entirely new people. This prevents the program from being used for property transfers disguised as refinances.

Documentation Requirements

Your lender needs standard income documentation plus proof of AMI eligibility. Gather your most recent pay stubs covering 30 days, your last two years of tax returns with all schedules, and recent bank statements.

If you're removing a borrower, additional documentation is required. For the 12-month payment history requirement, expect to provide bank statements showing mortgage payments came from the remaining borrower's accounts. Your lender may also want canceled checks or electronic payment records.

For death-related borrower removal, you'll need an official death certificate and possibly probate documents depending on your state's requirements.

Common Problems and Complications

Income calculations can be tricky if you have variable earnings. Commission, bonus, and overtime income typically requires a two-year history and may be averaged or discounted. This could push your qualifying income above the AMI limit even if your base salary alone would qualify.

Self-employed borrowers face additional scrutiny. Your tax returns might show business deductions that reduce your taxable income but don't reflect your true cash flow. However, for AMI purposes, lenders use your qualifying income after all adjustments, which could work in your favor.

Property location matters more than you might expect. If your property sits on a boundary between counties or metropolitan areas with different AMI calculations, a few hundred feet could determine your eligibility. Your lender will use the specific address to determine the correct AMI figure.

Timing issues arise when AMI figures change annually. Fannie Mae updates these limits each year, typically in the spring. If you're close to the income limit, consider whether waiting for new AMI figures might help your eligibility.

References

For the official guidelines, see 4302.4: Borrower eligibility in the Fannie Mae Selling Guide.