If you have negative equity in your home and want to refinance, there’s a program you should know about. FHA Short Refinance gives responsible homeowners an opportunity to refinance their underwater mortgages into more stable FHA loans. The program will run until December 30, 2016. »Find out if you qualify for a refinance»
Refinance for Borrowers with Negative Equity
On Sept. 7, 2010, the Federal Housing Administration launched a Short Refinance program to provide assistance to borrowers who have been timely in their mortgage monthly dues but have seen their property values drop. This difference between the loan balance and the property value poses a hurdle for refinancing, without which borrowers might end up losing their homes.
When you qualify for an FHA Short Refinance, you get at least a 10% reduction in your current mortgage balance. On the part of the lenders, it may lessen their loss as when they proceed with foreclosing the property.
Who is Eligible for FHA’s Short Refinance
To qualify, a borrower must be current on his/her existing mortgage or has completed a successful trial plan of three months. More importantly, the borrower should owe more on his/her mortgage than the property value. He/she must be able to qualify for a new loan under FHA underwriting standards. A FICO credit score of equal to or greater than 500 is required by FHA Short Refinance.
The FHA also requires a clean conviction record within the last 10 years from any of these crimes: theft, fraud, forgery, felony larceny; money laundering; or tax evasion related to mortgage or real estate transaction.
What Loan Qualifies for an FHA Short Refinance
For a loan to be refinanced under FHA Short Refinance, it must not be insured by the FHA. Eligible loan types are Alt-A, conventional, subprime, fixed- or adjustable-rate, and documentation type loans. Property types eligible are one- to four- unit housing and condominium units.
On the part of the first mortgage lien holder, it must agree to write off at least 10% of the unpaid principal balance on the mortgage. It may extinguish or re-subordinate any existing second lien on the mortgage.
The new loan must have (i) a maximum LTV or loan-to-value ratio of 97.75% of the property’s current value; and (ii) if with a second mortgage, a maximum CLTV or combined loan-to-value ratio of 115% of the property’s current value.
What Are Other Refinance Options
The FHA Short Refinance program has some four months to run, requiring loans to be closed on or before 30 Dec. In case you miss the deadline or are unable to qualify, there are complementary Making Home Affordable (MHA) programs sponsored by the federal government.
Option 1: If your mortgage is current and owned by Freddie Mac or Fannie Mae, there is the Home Affordable Refinance Program which is extended to September 2017.
Option 2: If your mortgage is owned, guaranteed, or insured by FHA, VA, USDA, or Freddie Mac/Fannie Mae, they each have streamlined or non-streamlined refinance options available.
Option 3: If you have doubts about your eligibility for an FHA Short Refinance or refinance for that matter, don’t hesitate to connect with us. We have access to lenders who can very well answer your questions about refinancing.
»The first step to refinance begins here»
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.
