The Freddie Mac Enhanced Relief Refinance program may help refinance your mortgage, even if you wouldn’t qualify elsewhere

• You can refinance your conventional mortgage with the Freddie Mac Enhanced Relief Refinance program.
• You’re eligible if you have less than 3% equity in your home and are current on payments.
• The FMERR program can help you lock in a better rate and/or lower monthly payments.
• See Insider’s picks for the best mortgage refinance lenders »

What is the Freddie Mac Enhanced Relief Refinance program?

The FMERR program is for people with a conventional mortgage who want to refinance but don’t have enough equity in their home to do a regular refinance.

Lenders usually require you to have at least 20% equity in your home to refinance, although they may accept less if you have an excellent credit score or debt-to-income ratio. But with FMERR, you can refinance if you have less than 3% equity. This program may appeal to you if your home has lost value since you bought it.

You’ll refinance into another conventional mortgage with a new interest rate. Your monthly payments will change, and you might choose to refinance into a new term length.

You may decide to refinance with the same lender you used for your initial mortgage, but you don’t have to. Shop around for the lender that offers you the best deal, including a low interest rate and low fees.

How to qualify for FMERR

Not everyone is eligible for the FMERR program. You’ll need to meet the following criteria:

• Conventional mortgage. You can’t use the program to refinance your FHA, VA, or USDA mortgage. You must have closed on your initial conventional mortgage on October 1, 2017, or later. If you’ve already refinanced your mortgage, the refinance should have closed on November 1, 2018, or later.
• Seasoning period. At least 15 months must have passed since you either closed on your original mortgage or last refinanced.
• Loan-to-value ratio. You need to have less than 3% equity in your home. Another way of saying this is that your LTV ratio should be above 97%.
• Current on payments. You should have no late payments in the last six months. Your mortgage should not have been 60 days delinquent at all in the last 12 months, or 30 days delinquent more than one time in the last 12 months.
• Benefit financially. A lender won’t approve your application if refinancing wouldn’t be a good financial move for you. This could include a lower interest rate, lower monthly payments, or shorter term. You can also switch from an adjustable-rate mortgage to a fixed-rate mortgage, which could help you budget more effectively to stay current on payments.

Should you apply for the FMERR program?

Pros

• Loan-to-value ratio. Usually, lenders require you to owe 80% or less of your home value to refinance. But the FMERR program lets you refinance with a much higher LTV ratio. If you refinance into an adjustable-rate mortgage, you can owe up to 105% of your home value. There is no maximum ratio if you refinance into a fixed-rate mortgage.
• Save money. The FMERR program requires you to benefit financially from refinancing. You could get a lower rate and/or monthly payments, refinance into a shorter term to pay off your home faster, or switch from an adjustable to fixed rate.

Cons

• Closing costs. As with your initial mortgage, you’ll need to pay closing costs when you close on your new mortgage. (This is the case with all refinances, not just FMERR.) Closing costs typically come to thousands of dollars, so budget accordingly.
• Limited ARM term options. If you choose an adjustable-rate mortgage, you can only refinance into one of the following terms: 5/5, 5/1, 7/1, 10/1, 5/6-month, 7/6-month, or 10/6-month. This may not be an issue, though — fixed rates are better than adjustable rates overall these days, so you may just choose a fixed-rate mortgage.

The FMERR program is likely a good fit if you want to refinance to save money, but you don’t qualify to do so through other channels. You should also make sure you can afford the closing costs. If paying thousands upfront would be a huge financial strain, you may want to hold off.

Maybe you thought you didn’t qualify to refinance your mortgage. But the FMERR program gives you that opportunity even if you still owe a lot of money on your home.