Underwater on your mortgage?
Earlier this month, the Federal Housing Administration began a new refinance program to help homeowners who owe more on their homes then they are currently worth. Unlike other programs, this program is only for homeowners who are current on their mortgage and who can meet other strict specifications for program inclusion.
The government-backed program, known as FHA Short Refinance, is like a refinance and modification rolled into one. According to the U.S. Department of Housing and Urban Development (HUD), the FHA Short Refinance option is designed to “encourage principal write-downs for [the] responsible borrower.” One catch, each lender’s inclusion in the FHA program is voluntary, and there is a chance your lender(s) may not be participating.
Basic Program Specifications
- Requires the consent of all lien holders and existing first lien holder must agree to write off at least 10% of their unpaid principal balance.
- Current on mortgage.
- Home worth considerably less than existing mortgage.
- Primary residence.
- Credit score of 500 or more.
- Able to qualify for new loan (refinance) under standard FHA requirements.
- Existing loan must not be FHA-insured.
Lender incentives are being doled out by the government to get lenders to participate in the FHA Short Refinance. Second lien holders are being offered incentives to agree to full or partial extinguishment of liens.
The program, which went into effect Sept. 7, is expected to help about 4 million homeowners current on their mortgage in the face of declining property values and who still face a hardship. Homeowners can qualify through the end of 2012.
If you fit the above basic program requirements, first check with your primary mortgage lender to see if they participate in the FHA program and if they will reduce your mortgage principle by 10%. Then, see if you meet all the specifications and are eligible to get a refinance under the FHA Short Refinance program. If so, you will have a lower principle amount and have a great FHA-insured new mortgage.
