When you purchase a home you do so intending for the home to be an investment. Unfortunately, all investments carry some risk and sometimes, your home becomes a burden rather than the asset you had intended it to be. Usually the home becomes a burden when the homeowner doesn’t make enough money to cover the cost of the payment, or when the homeowner gets underwater on the loan, meaning he owes more on the home than the house is actually worth. If you’re underwater, don’t stress it just yet. You may be able to get an FHA refinance house despite the situation you are in.
HARP and HAMP
When you are struggling to make ends meet with your home loan, you’ll find that there are multiple options open to you, all of which may help you take control of your finances. Two of these programs are HARP (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program),.
The Home Affordable Refinance Program was designed specifically for homeowners who are underwater on their mortgages. With this program you must be current on your mortgage, meaning you have paid all the payments for the last twelve months and you do not have late payments. Your loan must be controlled by a conventional lender, which is a lender that follows the guidelines of Freddie Mac and Fannie Mae. It is required that you live in the home you are refinancing, and that mortgage amount has to be more than or equal to the value of the home. This particular refinance program is very lenient in that most of the time you won’t be required to do an appraisal, the income restrictions aren’t quite as stringent, and oftentimes the fees are modified so they’re easier to pay. You’ll have to discuss the fees with your loan officer to determine what you’ll actually end up paying.
The Home Affordable Modification Programs is an FHA refinance house program, and there are a couple of differences when compared to HARP. This program was created for homeowners with existing FHA mortgages. It is a way for the homeowners to modify their existing mortgages, making them easier to handle. So it isn’t necessarily a refinance, more of a modification program. Once a homeowner is approved for this program he will be required to go through a trial period where he proves that he is able to meet the new mortgage terms and payments. This trial period lasts for three months. If you are able to qualify for the program and successfully complete the trial period, this option can have great benefits.
A Last FHA Refinance House Option
The last popular FHA refinance house program that many homeowners have turned to is the short refinance program. This program is in place for homeowners who are underwater on their mortgages. If you are not underwater and simply need a refinance, then you’ll want to get a streamline refinance or a traditional refinance.
To qualify for the short refinance you must be underwater and the mortgage must be federally insured. When a short refinance is completed the lender reduces the loan value to not more than 97.5% of the value of the home. Basically, they shave off and forgive thousands of dollars to make it so you are no longer upside down in the amount owed.
If you’re wondering why, the answer is because a default can be costly. The job of the lender is to lend money to homeowners, making money back on the interest paid out monthly. The lender is not a property manager or real estate investor – he’s a money lender. When a homeowner defaults, not only does he lose the money from the interest on the defaulted loan, he also has to take ownership of the home through a foreclosure, and then turn around and sell it, hoping to make his money back. It’s a lot of work, wasted time, and money lost, so many federal lenders are willing to forgive the extra amount owed. It’s important to note that you cannot get a short refinance unless your lender and any lien holders have all agreed to and signed off on the new loan.
Being underwater on a loan doesn’t mean imminent foreclosure. By taking advantage of one of these programs you may be able to get back on top of your finances while maintaining your integrity with the lender. So if you’re worried about your home, you may want to meet with a loan officer to discuss whether or not any of these options are open to you.