Every homeowner purchases the home planning to make the monthly payments faithfully until the loan is paid off. Unfortunately, this plan too often falls through and homeowners find themselves facing default and foreclosure, a scary place to be. But just because you’re looking at the possibility of foreclosure, it doesn’t mean that you have to be foreclosed on. The Federal Housing administration has created programs to help people save their homes. With an FHA refinance loan you may be able to refinance the mortgage into something more manageable for you, avoiding foreclosure in the process.
FHA Loan Refinances for Underwater Mortgages
For homeowners who are in conventional loans and owe more than their house is worth, the federal government has a couple of different programs. The first is the short refinance option. With this refinance the lender agrees to forgive at least ten percent of the debt, reducing the amount of the loan to 97.75% loan to value. This is a voluntary program so the lenders aren’t required to forgive the debt. However, doing so saves them the hassle of trying to resale a foreclosed home, so for many lenders it is worth it. To qualify for this loan you must have a conventional loan that you are underwater on. You have to have a credit score that is at least 500 and you need to meet the underwriting guidelines for standard federally insured loans. You also need to be in good standing on your loan, or you must submit to a trial period of 3 months to ensure that you can make the payments. Keep in mind that this loan is only an option until the end of 2014, at which point the program is going to be removed.
The second loan for underwater mortgages is the Home Affordable Refinance Program, or HARP. This program makes it possible for the homeowner to refinance to lower mortgage payments and interest rates, despite the fact that he is underwater on the mortgage. With HARP you do not have any principle removed. Instead, you refinance to the full value of the loan, making sure that the interest rates and mortgage payments are reduced. The key with HARP is to make the loan more manageable. As with the short refinance you do have to be in good standing on the loan, with payments made in full and on time for the last twelve months. The loan also has to be more than 80% loan to value. As with the short refinance, this is a temporary program and will be phased out within a year or two.
For homeowners who have FHA insured loans, but want to take advantage of FHA loan refinances, the streamline refinance is your best option. This refinance doesn’t require the qualifications for other programs. You don’t have to provide work history, get an appraisal done, or prove all of your income requirements. It’s very easy to get the streamline refinance because the qualifications are so minor so it’s a great option for homeowners who need lower rates.
HAMP and UP – Options that Don’t Require a Refinance
While many homeowners want to take advantage of FHA loan refinances, sometimes despite your best efforts, a refinance simply isn’t possible. For these homeowners there are other options available, including loan modifications and, as a last resort, government assistance. The first program is called the Home Affordable Modification Program. With HAMP you can modify your loan and reduce the mortgage payment, which of course makes it easier for you to handle. This is a program specifically designed for people experienced financial breakdowns. These are people who are delinquent on their payments already, or who are very likely looking at the possibility of missing payments. As with the short refinance, you will have to submit to a trial period before you are approved for assistance.
As a last resort option the government has the UP program, which stands for Home Affordable Unemployed Program. This is specifically for homeowners who have lost their jobs due to the recent economic downturn. It is a temporary relief program that allows you to reduce your mortgage payment or stop making payment entirely for a set period of time, the minimum being twelve months. During this time you need to be out looking for a job, getting back on your feet. Not everybody will qualify for this program, but it is an option for those who are in desperate situations.
There are many options open to struggling homeowners. For information on any or all of these programs, you’ll want to speak with a loan officer or your lender to determine if you are able to qualify and take advantage of these programs.