Homeowners who are underwater on mortgages but current on monthly payments might qualify for help through the government's refinance program. The Federal Housing Authority (FHA) Short Refinance begins Sept. 7, and targets non-FHA borrowers who have mortgage lenders that agree to write off at least 10% of the unpaid balance of their mortgage loan.
Requirements for home refinance
To qualify for refinancing under the FHA program, you need a credit score of at least 500. The property being refinanced must be your principal residence, so vacation homes and investment property don't qualify. After your mortgage loan has been refinanced the loan-to-value ratio should be no higher than 97.75%.
Generally, most mortgage lenders have been unwilling to modify home loans or write off principal for homeowners who remained current on monthly payments. But many homeowners who have continued to make mortgage payments on time are struggling due to declining incomes and other financial challenges. The FHA program could give some of these people some breathing room to catch up on other bills.
If you have a second lien on your property, that lender must be on board with the FHA refinance. The government plans to offer incentives to second lien holders that agree to wipe out all or part of the debt.
Contact mortgage lender
They only way to find out whether or not you qualify for refinancing through the FHA program is to contact your mortgage lender. Participation in the program is voluntary so your mortgage lender is not obligated to agree to write down your principal to allow you to refinance through the program.
Alternatives to avoid foreclosure
In the meantime, it's important to continue making mortgage payments if you want to qualify for the FHA refinance. If you are already behind on monthly mortgage loan payments you should pursue other options for getting help. Foreclosure prevention programs are targeted at borrowers who are already behind on mortgage payments, as well as people who are unemployed.
Speak with housing counselor
While it can be confusing to figure out which program may be able to help, don't think you have to sort through your housing woes alone. A qualified housing counselor should be able to discuss all your options and point you in the right direction. If you seek counseling because you are homeless or are trying to prevent foreclosure, you should not be charged a fee through the Department of Housing and Urban Development's Housing Counseling Program.
However, a housing counseling agency can charge a reasonable fee for additional counseling and education services, such as pre-purchase, reverse mortgage, rental, an non-delinquency post-purchase counseling services if certain conditions are met, such as informing clients of the fee structure before providing any services. Also, the fees must be commensurate with the level of service provided and fees must be waived for people who demonstrate that they cannot afford to pay.