Homeowners who owe more than their home is worth are being offered a new assistance program by the FHA known as Short Refinance. These mortgages may also be referred to as so called underwater or upside down home loans.
The Federal Housing Authority (FHAs) Short Refinance assistance program is aimed at those individuals and families who owe more on their mortgage than their home is worth. This is all too common today, in this weak housing market. Many people refer to these mortgages as 'underwater', because the loan value is greater than the principal of the home.
First and foremost, in order for a homeowner to be eligible for a new home loan from the FHA, the applicant needs to owe more on their home mortgage than their home is worth. In other words, the loan needs to be underwater or upside down. So for example, the home may be worth $150,000, and the balance on their loan may be $200,000. In addition, the homeowner must be current on their existing mortgage and can’t be behind on their payments or facing a foreclosure.
Another one of the primary criteria is that participation in FHA's home loan refinance program is voluntary and requires the consent of all lien holders. So if more than one bank or lender owns the loan, then all parties must agree to the refi.
The property must be the homeowners primary residence. The program does not offer refinancing or mortgage help for second homes.
Another condition is that the homeowner must qualify for the new mortgage under standard FHA underwriting requirements. So the Short Refinance program is not technically making it easier for people to receive assistance. In addition the borrower must have a credit score equal to or greater than 500. Learn how to improve credit scores.
The borrower's existing first lien mortgage holder must agree to write off at least 10% of their unpaid principal balance. In certain cases the percentage to write off may be greater than 10%, as at the end of the day the borrower's combined loan-to-value ratio can’t be greater than 115%.
Another condition of the FHA refinancing program is that the existing loan to be refinanced can’t be an FHA-insured loan, and in addition the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.
To facilitate the refinancing of new FHA-insured loans between struggling homeowners and lenders under this federal government mortgage assistance program, the U.S. Department of Treasury as well as HUD will provide incentives to existing second lien holders who agree to full or partial “extinguishment” of the liens, so this should help ensure the program is successful.
Click here to find other principal reduction programs offered by lenders including Wells Fargo and Bank of America.
To learn more about the program, or if you are interested in applying for help, you should contact your lender or mortgage servicer and reference this option. They will review the parameters with you and determine if both you and the loan is eligible. They will also initiate the process and determine whether the various banks and lenders who may hold the mortgage agrees to write down a portion of the unpaid principal.
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