What good are today's mortgage rates, at record breaking lows, if you can't qualify to refinance your home?
That's the question that industry analysts and media pundits have been asking for months. Real estate prices have yet to rebound in most places, keeping many homeowners underwater on home loans they refinanced in the years leading up to 2008's credit crunch. The third in a series of government-backed homeowner relief programs aims to make it easier for borrowers to avoid short sales or foreclosures, while locking in long term savings.
Do you qualify for the Short Refinance Program?
The FHA Short Refinance Program enables banks and borrowers to move conventional home loans back under the umbrella of the Federal Housing Administration. Under a "short refi," if your loan isn't already guaranteed by the FHA, it will consider guaranteeing your mortgage. You just have to meet a few specific guidelines:
- You have to be current on your mortgage payments at the time you apply.
- You must be in "negative equity," owing more on your home than its most recent appraisal.
- You must have a credit score above 500.
- You must meet all other FHA guidelines.
Under the FHA Short Refinance Program, the agency helps your lender perform the equivalent of a short sale to yourself. At the end of the process, you'll only have 2.25 percent home equity, based on the property's reset value. In exchange, your lender gets to remove a potentially toxic mortgage from its roster, while earning a cash payment from the FHA.
Avoid Short Refinance Program pitfalls
However, based on industry reaction to the two previous homeowner assistance programs (HAMP and HARP), don't expect mortgage lenders to fall over themselves to volunteer for FHA Short Refinance deals. The program is consensual: you must convince your lender to participate in the application and modification process.
Other pitfalls might prevent you from taking advantage of an FHA Short Refinance, as well. For instance, news reports indicate that the major credit bureaus still view the paperwork generated by a short refi the same as a short sale, which can potentially negatively impact your credit score.
Some homeowners' associations and town charters may even hinder you from participating if your deal threatens your neighbors' home valuations. Only by starting the conversation with your mortgage lender now can you find out if the FHA has a solution for your underwater home loan.