What Is Refi Possible and Why It Exists
Refi Possible is Fannie Mae's streamlined refinance program designed to help homeowners with limited equity refinance into lower rates with reduced documentation requirements. The program targets borrowers who might not qualify for conventional refinancing due to high loan-to-value ratios or limited financial reserves.
The program exists because many homeowners found themselves with little equity after the housing market fluctuations of recent years. Traditional refinancing often requires substantial equity or cash reserves that these borrowers simply don't have.
Property and Occupancy Requirements
Your property must be a one-unit primary residence that you currently occupy. This includes detached homes, attached homes, condominiums, planned unit developments, manufactured homes, and cooperative units if your lender is approved to handle cooperative loans.
The property cannot be an investment property or second home. Fannie Mae designed this program specifically for homeowners who live in the property they're refinancing.
For condominiums and cooperatives, lenders don't need to verify that the entire project meets Fannie Mae's usual project requirements. However, the project cannot be a condominium hotel, cooperative hotel, houseboat project, timeshare, or have segmented ownership.
Loan-to-Value Limits and Secondary Financing
Most properties can be financed up to 97% loan-to-value ratio. Manufactured homes have a lower limit of 95%. If you have a non-occupying co-borrower (like a parent helping you qualify), the maximum drops to 95% regardless of property type.
Here's where it gets interesting: if you have an existing second mortgage or home equity line of credit, you can refinance both loans simultaneously. The new second mortgage cannot have a higher balance than what you're paying off, and the monthly payment on the second loan cannot increase.
You cannot take out new secondary financing with a Refi Possible loan, except to replace existing secondary financing under these strict conditions.
The Borrower Benefit Test
Every Refi Possible loan must pass a two-part benefit test. Your new first mortgage interest rate must be at least 50 basis points (0.50%) lower than your current rate. Additionally, your total monthly payment for principal, interest, and mortgage insurance must decrease.
Say your current first mortgage payment is $1,800 per month at 5.25%. Your new loan at 4.50% results in a payment of $1,650 per month. This meets both requirements: the rate dropped by 75 basis points and the payment decreased by $150.
The payment comparison includes mortgage insurance if applicable. If your new loan requires mortgage insurance but your current loan doesn't, the total payment must still decrease for you to qualify.
Cash-Out Restrictions
Refi Possible is not a cash-out refinance program. You can receive a maximum of $250 cash back at closing. The loan proceeds can only pay off your existing first mortgage, cover closing costs, and provide that small cash disbursement.
If any money remains after paying off your old loan and closing costs, it must be applied as a principal reduction to your new loan. This must be clearly shown on your closing disclosure.
Credit Score and Assessment Requirements
Unlike most mortgage programs, Refi Possible has no minimum credit score requirement. However, you still need sufficient credit history for the automated underwriting system to generate a credit score. If you have no usable credit score due to insufficient or inaccurate information, you cannot use this program.
For manually underwritten loans, lenders can skip the usual detailed credit assessment as long as your mortgage payment history meets requirements and you've satisfied any recovery periods following significant credit events like bankruptcy or foreclosure.
If a significant credit event was caused by circumstances beyond your control, your loan file must document these extenuating circumstances.
Income Documentation Requirements
Refi Possible uses streamlined documentation requirements that vary by income type. For basic employment income, you need either a year-to-date paystub showing your earnings or a written verification of employment, plus a 10-day pre-closing employment verification.
Variable income like tips, bonuses, overtime, and commissions requires more documentation. You need a year-to-date paystub and your most recent W-2, or a written employment verification covering both current year and prior year earnings, plus the employment verification.
Self-employed borrowers must provide complete federal tax returns for the most recent year and third-party verification that their business currently exists. This verification must be obtained within 120 days before closing or after closing but before loan delivery.
Military personnel need their year-to-date Military Leave and Earnings Statement. Those receiving alimony or child support need the legal documentation establishing the obligation and proof of receipt for the most recent month.
Asset Documentation Requirements
If you need more than $500 for closing costs, you must document sufficient funds according to standard requirements, except that account statements need only cover one month instead of the usual two months.
If your closing costs are $500 or less, no asset verification is required at all. This significantly streamlines the process for borrowers with minimal closing costs.
Property Valuation Requirements
Most Refi Possible loans require a full appraisal with interior and exterior inspection. However, if Fannie Mae's automated system offers collateral representation relief through their ACE or ACE+ PDR programs, you may not need an appraisal.
Manufactured homes always require a full appraisal and cannot use the automated valuation options.
If you do get an appraisal but your loan qualifies for the automated valuation waiver, Fannie Mae provides an appraisal cost offset credit that your lender must pass to you.
Debt-to-Income Requirements
There's no maximum housing expense ratio for Refi Possible loans. Your total monthly debt-to-income ratio must be 65% or less, including when you have a non-occupying co-borrower.
This higher debt-to-income allowance compared to many conventional loans reflects the program's focus on helping borrowers with limited financial flexibility.
Common Complications and Gotchas
The 50 basis point rate reduction requirement can trip up borrowers who find rates that are only slightly lower than their current mortgage. Make sure the rate improvement meets this threshold before proceeding.
Property type restrictions eliminate many borrowers. Investment properties, second homes, and properties with more than one unit don't qualify, regardless of how beneficial the refinance might be.
The cash-out limitation surprises many borrowers who want to access their home's equity. This program is strictly for rate and payment reduction, not cash extraction.
Employment verification timing matters. The 10-day pre-closing verification requirement means your lender will contact your employer shortly before closing to confirm you still work there.
References
For the official guidelines, see 4302.5: Special eligibility and underwriting requirements for Refi Possible® in the Fannie Mae Selling Guide.
Mortgage guidelines change. Stay current.
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Original Freddie Mac Guideline Text
The following table describes the special requirements for Refi Possible
®
Mortgages applicable to Loan Product Advisor
®
Mortgages and Manually Underwritten Mortgages, except as specifically stated otherwise:
Special eligibility and underwriting requirements for Refi Possible Mortgages
Topic
Special eligibility and underwriting requirements
The Refi Possible Mortgage must be:
Submitted to Loan Product Advisor in accordance with the requirements of
, or
Manually underwritten in accordance with the requirements of the Guide except as specifically stated otherwise in this chapter. The Mortgage must be otherwise eligible for manual underwriting in accordance with the Guide.
General eligibility requirements
The Refi Possible Mortgage must be a fixed-rate Mortgage
The Refi Possible Mortgage must not be:
A Mortgage with a temporary interest rate buydown
A super conforming Mortgage
Originated pursuant to Section 50(a)(6) of Article XVI of the Texas Constitution. Refer to
Section 4301.7
for additional information regarding Texas Equity Section 50(a)(6) Mortgages.
An existing junior lien:
Must be subordinated to the Refi Possible Mortgage and must meet requirements for secondary financing in
Chapter 4204
May be refinanced simultaneously with the existing First Lien provided that:
The UPB of the new junior lien is not more than the UPB, at the time of payoff, of the junior lien being refinanced,
There is no increase in the monthly Principal and Interest Payment of the junior lien
No new subordinate financing is permitted, except to replace existing subordinate financing as stated above.
Occupancy and property eligibility
The Refi Possible Mortgage must be secured by a one-unit Primary Residence
The Mortgaged Premises must be an attached or detached dwelling, a Manufactured Home, a unit in a Condominium Project or Planned Unit Development, or, if the Seller is permitted to deliver Cooperative Share Loans under its Purchase Documents, a Cooperative Unit
For Mortgages secured by Condominium Units or Cooperative Share Loans, the Seller is not required to evaluate if the Condominium or Cooperative Project meets the project eligibility requirements, provided that:
The Seller represents and warrants that the project is not located in a Condominium Hotel or a cooperative hotel, houseboat project, timeshare project or project with segmented ownership; and
The project has insurance that meets the applicable insurance requirements of
Chapter 4703
Maximum loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratios
1-unit other than Manufactured Homes
97%*
95%
Mortgage with a non-occupying Borrower, whether or not secured by a Manufactured Home
95%*
*A TLTV ratio up to 105% is permitted when the Mortgage is not secured by a Manufactured Home and secondary financing is an Affordable Second
®
.
Borrower benefit
The refinance transaction must result in
both
of the following:
A First Lien Mortgage interest rate reduction of at least 50 basis points
AND
A reduction in the Borrower’s First Lien monthly principal, interest and mortgage insurance (if applicable) payment amount
Use of Mortgage proceeds
The proceeds of the Refi Possible Mortgage must be used only to:
Pay related Closing Costs
Disburse cash to the Borrower not to exceed $250
In the event there are remaining proceeds from the Refi Possible Mortgage after the proceeds are applied as described above, the excess proceeds must be applied as a principal curtailment to the Refi Possible Mortgage and must be clearly reflected on the Settlement/Closing Disclosure Statement.
Minimum Indicator Score
There is no minimum Indicator Score required for eligibility of Refi Possible Mortgages; however, the Seller must identify and deliver an Indicator Score for all Refi Possible Mortgages in accordance with the requirements for identifying the Indicator Score in
Section 5202.1
.
If the Seller determines that there is no usable Credit Score due to insufficient information or inaccurate information, the Mortgage is not eligible for sale to Freddie Mac.
Credit assessment for manually underwritten Refi Possible Mortgages
For Manually Underwritten Mortgages, the Seller does not need to perform a credit assessment of the Borrower in accordance with
Chapter 5202
provided that:
In addition to meeting the payment history requirements for the Mortgage being refinanced, the Mortgage complies with the recovery time periods for reestablishment of credit following a significant derogatory event, as stated in
Section 5202.1(d)
If the significant derogatory event was caused by extenuating circumstances, the Mortgage file must contain documentation attributing the cause of the financial difficulties to outside factors beyond the Borrower’s control
Maximum debt payment-to-income (DTI) ratio
There is no maximum housing expense-to-income ratio
The total monthly DTI ratio must be less than or equal to 65%, including when a non-occupying Borrower is present
Income and employment documentation requirements
The minimum documentation requirements in the table below apply to the referenced income types in lieu of the Streamlined Accept and Standard Documentation Level requirements stated for these income types in
Minimum documentation requirements
Base non-fluctuating employment (primary only)
Year-to-date (YTD) paystub documenting the YTD earnings, or
Written verification of employment (VOE) documenting the YTD earnings,
and
10-day pre-closing verification of employment
Fluctuating hourly employment (primary only)
Tip, bonus, overtime and commission income
YTD paystub documenting the YTD earnings and W-2 for the most recent calendar year, or
Written VOE documenting the YTD earnings and the earnings for the most recent calendar year
and
10-day pre-closing verification of employment
Military income (basic pay, entitlements, Reserve and National Guard income)
YTD Military Leave and Earnings Statement
Self-employment
Complete federal individual and business income tax returns for the most recent one-year period, and
Verification of the current existence of the business through a third-party source obtained either no more than 120 calendar days prior to Note Date or after the Note Date but prior to the Delivery Date
Alimony, child support or separate maintenance
Copy of legally binding documentation verifying the payor’s obligation (i.e., signed court order, final divorce decree, legally binding separation agreement, legally binding child support agreement or other legally binding documentation) for the previous one month, including the amount and the duration of the obligation
Documentation to evidence receipt of the alimony, child support and/or separate maintenance payment for the most recent one month:
Evidence that the payment was cashed or deposited into the Borrower’s depository account at a financial institution, or
Evidence that the payment was transferred into a third-party money transfer application account owned by the Borrower, or
Statement from a government agency (i.e., child support agency) reflecting the Borrower’s name and the amounts paid
All other income types must be documented in accordance with the Streamlined Accept and Standard Documentation Level requirements in
Topic 5300
All other documentation requirements, including
Chapter 5302
and additional requirements for certain employment characteristics in
, apply
Asset documentation requirements
When funds required for closing are more than $500, sufficient Borrower funds must be documented in accordance with
Topic 5500
, except that funds in a depository, securities or retirement account used for closing must be documented with one-month account statement or a direct account verification
When funds required for closing are $500 or less, verification of funds is not required
Property valuation requirements
The Seller must obtain an appraisal with an interior and exterior inspection that meets the requirements of
Topic 5600
unless the Last Feedback Certificate includes an automated collateral evaluation (ACE) offer stating that the Mortgage is eligible for collateral representation and warranty relief with ACE, or ACE+ PDR, and the Seller has accepted the offer. See
Section 5602.3
for more information on ACE or
Section 5602.4
for information on ACE+ PDR.
Refi Possible Mortgages secured by Manufactured Homes must meet the appraisal and valuation requirements of
Chapter 5703
and are not eligible for ACE or ACE+ PDR
An appraisal cost offset credit will be provided if an appraisal was obtained for the transaction and the loan is delivered without ACE or ACE+ PDR
The appraisal cost offset credit as described in
, must be passed to the Borrower
Negotiated provisions
Unless specifically made applicable to Refi Possible Mortgages, negotiated underwriting provisions that impact the underwriting or eligibility requirements of Refi Possible Mortgages must not be used with these Mortgages.
