FHA Mortgage Tips

New Home Underwater Refinancing Options

Homeowners Underwater Refinancing Options

Homeowners underwater refinancing option are very narrow these days. Those who have exceeding mortgage balance of their property, know very well the ineffectiveness of trying to refinance. Refinancing options for underwater mortgages are limited because many lenders require some sort of equity in property. The ideal amount of equity for lenders is at least 20 percent.

Even with such constraints, the borrowers have different options, for example, the “Making Home Affordable” program by the government. Below are some new home underwater refinancing options for the borrowers.

Underwater Refinancing Option #1 HARP

Upon meeting a certain criteria, you can secure refinancing through HARP (Home Affordable Refinance Program). This plan allows the borrowers to secure refinancing loan which is 105 to 125 percent of the total value of the property.

Usually, every underwater loan does not qualify for HARP. If you are on your way to foreclosure, or there are felonious payments in the last 12 months, you will be automatically disqualified from the program.

To secure HARP, you must have a rational payment history, good credit score as well as a buildup of present home financing and detailed lender guidelines. Also, HARP is not meant for everyone, while lenders have closed many HARP loans due to various ineligibility issues by borrowers. According to lenders, if HARP refinancing can escape you $300 to $400 of the monthly mortgage payment, it can give you a difference of either keeping or losing your property.

If your score is less than 700, you may need to improve the FICO score, this can save you thousands of dollars and improve your chances to get a YES from the lender. No lender wants to take today unnecessary risks, improving your score by a few dozen points, can be all you need. This can be done by following a simple ‘clean credit guide’, just like this one.

Underwater Refinancing Option #2 HAMP

You can qualify to secure HAMP (Home Affordable Modification Program) even with underwater mortgage and missed out payments.

In order to qualify, you should prove your financial hardship. Your mortgage must be owned by the lenders who are signed up with the Treasury. For this program, the government finances up to $1,500 to the lenders to process the loan, however, the lenders have got the ultimate right to approve or disapprove the HAMP application. 

HAMP might be a very simple solution for many borrowers, but there are also some very strict HAMP qualification guidelines. Also, the home should be your primary residence, the amount of mortgage should be less than $729,750, your present monthly payments should be more than 31 percent of the present gross income and you must prove the disability or difficulty to make payments. 

Upside Down Mortgage Refinancing -Reality Check

The underwater borrowers, who are unable to qualify for the new home underwater refinancing options, should also, realize the fact that these plans do not always work for everyone. Unfortunately, at present there are no underwater refinancing options  for borrowers backed by the government.

In spite of these barriers, you should not stop negotiating upon loan modification to your mortgage lender. Many lenders are ready to offer different patterns of loan restructuring as a substitute to the foreclosure, however, these are not backed by the government.

Unfortunately, when facing no new home underwater refinancing options, you should inquire about any chances of a short sale. This means that you are ready to sell your house on market price with the remainder amount of loan absolved by the lender.

FHA Streamline Refinance – No Out Of Pocket Closing Costs

FHA Refinance – No Out Of Pocket Closing Costs

 There are many FHA refinancing closing costs which need to be paid during an FHA refinancing process. These closing costs may include all the fees and costs summed up in the FHA refinance process. Except from the FHA streamline refinance – ‘no out of pocket closing costs’ which will be explained here, there are other ways the FHA allows borrowers to pay their closing costs.

Closing costs include of all the fees and costs which had to be paid during the approval of the refinanced mortgage. Costs such as appraisal fees, title fees, lenders fees, and government fees connected to the FHA mortgage processing. FHA refinance streamline programs ’no out of pocket closing costs’ can be very appealing to customers who wish to refinance but can not afford paying the current closing costs.

The closing costs for a FHA streamline refinancing mortgage can be 2% of the mortgage loan. This means for every $100,000 you refinance, the closing costs will be around $2000. When homeowners who refinance do not have enough cash to pay the closing costs and the FHA agrees, the closing costs would be mounted into the new mortgage loan.

‘No Closing Costs’ Does Not Mean It Is Free

It might be tricky to think that the fact that the FHA streamline refinancing has a no closing cost option, it is free of charges. It is certainly not. There are two main ways to complete the transaction without pulling cash out of your pockets.

The first option is when you mount the closing costs into the new mortgage. In this case you will be paying an interest as agreed, on a slightly higher amount of mortgage.

The second option in FHA streamline refinancing is that the lender agrees to pay off all the closing costs (which becomes a ‘no out of pocket closing costs’ for you) in exchange to offering a slightly higher interest rate.

Which Closing Cost Payment Option Is Better

Now (Sep’ 2011) when a echo sound was heard when the mortgage interest rates have hit yet another ‘ever low’ rates (60 years low), requesting the first an option may be a smart move. When interest rates are so low, $4000 additional mortgage will overthrow you off the deck. You should forward this issue to your current mortgage divisor, to calculate the impact it will have over your future mortgage payments. 

For a $300,000 mortgage the closing costs may reach $9000. The second option (lender paying in exchange for a higher rate) may not be financial, but may be the only option if the closing costs fees are not affordable. Even though, today (end of 2011)  when the national interest rates  have reached rock bottom adding a small percent may still be acceptable.

Win-Win – No Out Of Pocket Closing Costs

The option not to pay the closing costs is a fine option to the borrower, but it is also a fine option for the lender, as they will be gaining profit twice.

First time would be when the mortgage sum increases, the lender will make more profit as the interest rate will be on a larger sum. The second thing would be that the lender will agree to a no out of pocket closing costs in exchange too slight increase in the rate. They will be making higher profit on the whole sum.

When No Out Of Pocket Is Not Permitted

There are several scenarios in which the FHA streamline refinancing will not approve a no-out-of-pocket closing costs solution. This can be if the FHA streamline refinanced mortgage does not have enough equity (97.75%) according to the FHA appraisal evaluation report. Though appraisal report is not needed for the FHA streamline refinancing, the no-cash-out will be possible for equity over 97.75% or 97.75% of the previous loan amount.

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Read More Relevant Posts

• How to Refinance An Underwater Mortgage
• How To Detect Refinancing Scams
• FHA Streamline Refinancing Guide 2011
• Cash-Out Refinancing Requirements

Fast! 2011 Refinance To FHA Assumable Mortgage

Why To Refinance Now To An Assumable Mortgage

Refinancing to a FHA assumable mortgage loan may be the smartest financial move you have ever done. There are several factors which makes refinancing to FHA assumable mortgages more lucrative than ever. The main benefit to refinance now at 2011 to a FHA mortgage loan is because the rates are low and are expected to increase in the coming years. So now is the last chance to get an assumable mortgage at it’s highest value. 

What Is An Assumable Mortgage Loan

An assumable mortgage is a regular mortgage which can be transfered from the seller to the buyer. The buyer buys the house and accepts the terms and rates of the current mortgage, and assumes all the liability from the seller. The buyer does not need to shop for a new mortgage, the buyer gets the mortgage as-is with the same rates as the seller have locked a few years back. If you are the seller it is important that you get a letter from the lender which releases you from all liability to the mortgage from the closing point/transferring moment.

1. Assumable Mortgage Loan Example:

Smith has a home for sale at the price of $150,000 and has an assumable mortgage loan of $130,000 with 5% interest. Jack wants to buy Smith’s home. With an assumable mortgage, Jack only needs to add $20,000 (plus closing fees) to own Smith’s home and mortgage.

2. Another Assumable Mortgage Example:

Robert bought a home with an assumable mortgage loan of $150,000 with 5.5% interest rate. Three years from now, the mortgage balance is $120,000 and Robert wants to sell his home. Sally is looking to buy a home, she does her financial homework and finds that the current mortgage rates are for 7.5%. Robert offers his home to Sally at $170,000 with an assumable mortgage. Sally can buy the home assuming the mortgage and enjoy $120,000 of mortgage with 5.5%. She will need a $34,000 as down-payment (20% from $170K) and a small $16,000 second mortgage at the current rates (7.5%) to pay Robert for the house.

The assumable mortgage made Robert home stand out significantly compared to other homes for sale at that time, because it was offered with an assumable mortgage loan locking a lower rate for future buyers. This value can be worth up to $20,000 or more, and is usually divided between the seller and the buyer. If the seller takes all the value, his home becomes comparable, if the buyer gets all the value, then the seller is selling cheap and losing money.

When To Leverage an Assumable Mortgage 

When assumable mortgages are worth your notice? Now at 2011 when future rates are expected to be higher than current rates, there is a real incentive and value for such mortgages.

The sub-prime crisis has caused the national mortgage interest rates to fall to their lowest rates ever. But that will not be the situation forever, the mortgage interest rates will rise, and will reach their former rate of 7% or even more within a few years. So obtaining an assumable mortgage and locking a low 5% rate now may be worth thousands of dollars somewhere in the future, when you may want to sell your home!

Lenders Dislike Assumable Mortgage Loans

First of all, regular lenders and banks do not like the assumable mortgages, for them it is a ‘lose’ situation. The lender does not gain any thing from the fact that the new buyer gets the mortgage in the same low rates. They prefer to provide new home-buyers with a new mortgage with current (higher) rates.

So most lenders block this option from the borrowers and prohibiting assuming mortgages by adding a term to the contract that the when the property is sold the mortgage must be paid off in full. So the seller needs to pay off all the mortgage left on the house with the cash they get from the buyer, and the buyer will need a new mortgage to be able to pay the whole sum in one lump.

In case the lender allow assuming a loan they will charge a fee assocciated with an Assumable Mortgage to cover the documentation, and recording of the transfter. In some cases they will change the terms or even the rates and try and lock the current rates.

Why To Refinance 2011 - FHA Assumable Mortgages

Most regular mortgage lenders would not be too thrilled to allow you to transfer the mortgage somewhere in the future. VA (veterans affairs) loans can be assumed too, but you have to be a veteran to apply for those. But there is a loophole, FHA backed mortgages are still allow assuming them when the home is being sold.

The seller would need to be able to meet all the FHA mortgage requirements and FHA minimum credit score requirements and show the lenders they are qualified for a mortgage. But once the buyer has been approved the mortgage can be transfered and the buyer assumes the mortgage with all the liability at the closing.

If you have any other mortgage, with high interest rates, then refinancing may be the best thing to do. See these 5 reasons why refinancing may be a mistake. If non of the reasons apply to you, then refinancing may be a sensible option. Refinancing to FHA assumable mortgage, is actually the only option for an assumable mortgage.

Assumption Mortgages Refinanced Conclusion

Because the only option for mortgage interest rates now is to get higher… and the best way to save your option to sell your home and get a better price for it, is to sell it with an assumable mortgage with it. Now at 2011 when all the lenders block this option, you can get such mortgages by refinancing to FHA assumable mortgages.

You will be saving money by reducing your mortgage monthly payments or reducing the mortgage terms. You will be holding a ‘profitable share’ when interest rates will sky-rocket in few years. You could either raise your home price and still have a lucrative asset people would want to buy, or keep your home comparable and get a higher down-payment as part of the value the buyers enjoys. In any case refinancing to a FHA assumable loan is worth the time and effort.

What Is An Upside Down Mortgage – And How To Refinance It?

Upside Down Mortgage? There is Still Hope

When someone is upside down on the mortgage there are very little options to choose from. Too many homeowners who are currently underwater, are preferring to walk away from the mortgage than fall into a foreclosure. Having an upside down mortgage, means that a homeowner owes more to the bank than the property is worth. In this short review you can learn more about Upside Down Mortgage – And How To Refinance It?

What is an upside down mortgage situation? Financially it is the worst situation for all the parties, the homeowner is sinking, the bank is at a high risk position, and if the upside down mortgage is flushed down the drain, it is a financial disaster to everyone.

What Is An Upside Down Mortgage Situation

A mortgage can be called upside down when the amount owed by the borrower (homeowner) is exceeding the value of the property. For example if a person has bought a home for $280,000 and for this home they had to pay a regular 20% down payments of $56,000 and get the rest as a mortgage loan of $224,00.

At the beginning of the mortgage there most of the payments are set to cover the interest rate and a tiny bit of the monthly payment is to lower the principle. So when the housing markets crashed (as they did at 2008/9) the value of the property in our example may be well below $150,000! This leaves the homeowner with a huge mortgage ($224,000) and the lender with a negative equity home worth less than the borrower had borrowed. This is exactly a situation of upside down mortgage.

If the borrower fails to stay current on the mortgage, and they are too late on payments, the lender may begin a foreclosure process, but then the ‘prize’ will be a $150,000 home, when they lend $224,000… The homeowners are losing their home and all the cash down payment  they have invested in the house, together with their dreams and hopes.

There was a decrease in the amount of upside mortgages reported at 2010, but that was not because homes value raised it was because too many fell to foreclosure. The Obama Administration was trying to help upside down mortgage owners but the Hope for Homeowners  programs were not as successful as people hoped they would be.

FHA Short Refinance – Obama Throwing a Life Jacket

The federal government has launched an emergency plan at 2010 to try and help home owners who are upside down on their mortgage to gain some hope. These program was the FHA (Federal Housing Administration) backing up mortgages for homeowners with a upside down mortgages which where not a FHA loans at the first place.

It is estimated that about  500,000 to 1.5 million homeowners would benefit from this FHA short refinance 2011 program. As many more home owners have now a negative equity mortgage (also known as ‘underwater mortgage’ or ‘upside down mortgage’).

Upside Down Refinancing Is Not For Everyone

The two main faults in the underwater mortgage relief program (FHA short refinance) is that:

• It depends on the lender to write off 10% of the principle, and not to many lenders are happy to join such a plan in which the entrance fee is 10% off their principle loan.
• The borrower must be current and up to a long list of requirements which makes the upside down mortgage assistance suitable only for a few ‘rare’ borrowers.

Until February 2011 only a few lenders where willing to participate, it is reported that more and more lenders are now joining the HUD short refinance program, Wells Fargo and Ally Financial have both stated they will join a pilot program. Federal Housing Administration Commissioner David Stevens said testifying before a House subcommittee that “Based on additional discussions, several more lenders are in the process of developing the capability to utilize the FHA Short Refinance option by midyear and intend to collectively assist several thousand more homeowners”.

Will FHA Short Refi Save Your Upside Down Mortgage

The FHA short refi program is backed by the Treasury Department which set aside $14 billion in Troubled Asset Relief Program funding for it. In short the FHA short refi plan requirements are:

1. The homeowner must be underwater but still current on the mortgage.
2. The Mortgage to be refinanced must not be already insured by the FHA.
3. A credit score higher than 500 is required.
4. Max LTV (loan-to-value ratio) for the new refinanced mortgage may not exceed 97.75%
5. Borrowers must occupy the property.
6. Borrowers will have to pay transaction fees associated with refinancing and pay (FHA backed) mortgage insurance.
7. Have an income that can support the current loan payments.

If you meet all these FHA short refinance requirements for 2011 than you may be eligible for a upside down mortgage assistance. The lenders must agree to write off at least 10% of the owed principle and if there is a second mortgage or lender then the second-lien holder must agree to the refinance too.

The FHA will check whether the combined (first and second mortgages) loan to value LTV exceeds 115%. If it does then either the first- or second-lien holder (or both) will need to reduce the loan balance further. As you see the lenders need to write off some mortgage money, and most of them do not have any incentive to do it, especially when the borrowers are still current! The federal government has published some incentives for the lenders to help them participate under these terms.

Upside Down Mortgage Assistance Conclusion

Unfortunately there is not much to do when the mortgage is underwater. This situation is the worst case scenario for everyone involved. If financially you can not stay current on your payments, then the FHA short refinancing is not the solution for you, lender will not agree to write off 10% to someone who is behind and they will not approve the application.

If you have underwater mortgage but kept paying all the payments you may want to check with your lender, to see whether they are participating in the FHA short refinance program. You may want to send them the HUD mortgagee letter and let them know the list of lenders is growing constantly.

The HAMP program is helping to modify mortgages which owners are behind on their payments, so if this is your current financial situation, you may want to begin your search there.

Need HARP or HAMP? See Eligibility Requirements For 2011

Eligible For HARP or HAMP Requirements

HARP or HAMP? Are you eligible? What are the HAMP or HARP requirements for 2011? Millions of homeowners are struggling to survive financially after the 2008 depression. Their home value have declined deeply and many have lost their jobs, sending them a one way ticket to foreclosure. The Obama administration has issues some programs intended to help these homeowners, but far too many of them at 2011 do not know whether they are eligible for the HARP or HAMP requirements.

HARP (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program) are two programs made as part of the Homeowner Affordable and Stability Plan (HASP) their main porpoise is to help homeowners in poor financial situations a financial life-jacket. Both programs are aiming to help the people who have underwater refinancing needs. “Underwater” means that their current mortgage is much higher than the house value, this happened because after the subprime disaster of 2008/9 houses value plunged deeply.

For example a homeowner takes a mortgage at 2007 for a house value of $150,000, now at 2011 the home market value is $100,ooo, and the mortgage is $120,ooo. The loan to value factor (LTV) is 120%. This is an unstable situation where the mortgage loan is much higher than the market value of the property, because it is risky for the homeowner and the lender too. These kind of mortgages with negative equity are held by millions of households, it is estimated that 25% of the mortgage market are underwater!

HARP Refinancing Program Requirements

The HARP was extended until June 30 2011. Basically many see this refinancing program as a failure, because it was used by a small percentage of the homeowners it was meant to help. As little as 709,900 refinances were done through this program, which is disappointing compared to the millions of borrowers it was intended to serve. The HARP assistance program is for people who are NOT in danger of foreclosure.

The eligibility to join HARP is to meet these requirements:

1. 1 Year Homeowner Occupied – The homeowner must occupy the eligible property for at least 12 month before applying to the HARP assistance program.
2. Must Be Individual/s – The HARP does not support cooperation, companies, partnerships or any other non individual legal identities. The homeowner qualifying must be a person.
3. Must Be Current On Mortgage – Since the refinancing process means getting a new one in new terms, the lenders need to see you are a good customer, this means not being behind on any mortgage payment in the last year.
4. 30 Days Deadline - You must not be late on any mortgage payment by over than 30 days.
5. Loan To Value Ratio – To qualify for the HARP assistance plan your LTV must be below 125%. You may be underwater, but you should not be at the ‘bottom of the sea’ to be qualified.
6. Freddie or Frannie – The mortgage you currently have needs to be backed by Frannie Mae or Freddie Mac to qualify. If you are unsure if whether your mortgage belongs to either of them check at the making home affordable (MHA).

HAMP Mortgage Modification Requirements

The HAMP modification program has a different set of requirements as this program is meant to help people who suffer a decline in income together with a upside down mortgage (underwater).

The HAMP modification program has three stages, the first stage is the qualification process, when the homeowner has to meet the minimum requirements as followed below, the second stage is a trial test, to to be current on the new mortgage for 90 days, only then the new mortgage terms become permanent.

For the first stage HUD has specific HAMP eligibility requirements:

1. Front End Debt To Income Ration Of 31% – The ‘front end’ debt to income ratio is a measurement of how much of the gross income (before taxes) goes to returning the mortgage loan. People who have over 31% means they are financially sinking, and even if they are not yet delinquent on the mortgage they will soon be.
2. Back End Debt To Income Ratio of 51% – The ‘back end’ debt to income ratio is the real factor for the family financial survival, as it takes into calculation all other debts too (credit cards, car loans, student loans and other obligations). Having more than 51% of the gross income owed as debts means a financial slippery slope or crash is predicted, these families with back-end debt to income of 51% or more will need to join debt counseling program.
3. Owner Occupied Mortgages Only - The federal government want to help homeowners and not investors and home flippers. The borrower will need to prove they are living at the home they wish to include in the HAMP program, it can be 1-4 unit.
4. Mortgages Before 2009 – Since this program is meant to help homeowners from the 2008/9 economic slowdown, only mortgages which were originated before 2009 are eligible to be qualified in HAMP.
5. Unpaid Principal Criteria – The HAMP program wishes to help people who are going underwater, if not at the present than may be in the near future. Less than $729,500 unpaid principle for a single home unit. Less than $934,200 for 2 units; $1,129,250 for 3 units and $1,403,400 for 4 units.
6. Second Lien – This is the most ‘tricky’ requirement, as it is beyond the homeowner reach and depends on the goodwill of the second mortgage lender. The HAMP requests the holder of the second  lien (the other lender) to take a subordinate position with regards to the modified loan.

HAMP or HARP Success or Failure

Unfortunately too much hope was placed on these two programs to pull out the drowning homeowners from the underwater mortgage situations they have been at. Though a lot of federal funds have been invested on these two programs (and other) the figures are not optimistic. For the end of 2010 the foreclosure filings have increased dramatically!  Bank repossessions continue to increase.

The main issues which make these programs unable to breakthrough are the reliability on the lenders to finance most of the modifications and fit the new mortgages into new terms and conditions, which in some cases means losing money. With too many people loosing their jobs and having low credit scores holds many of them from getting better rates.

For the HAMP program over 1.1 million homeowners are under a trial period, this means they are at the second stage, where they have qualified for these requirements and now they have new terms on their mortgage. If they manage to be current for 90 days these new terms and conditions will turn permanent.