As the American housing market continues to bounce along the bottom, the Obama Administration continues to adjust the programs that it offers under the “Making Home Affordable” banner. The original Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP) had little impact on the problem of underwater borrowers. However, revisions to the HARP program and changes to the FHA, VA and USDA refinance programs now let almost every homeowner in America to take advantage of the Obama low mortgage rates.
The Problem: Why We Need Loans for Refinancing Mortgage 100% of Value and Above
Traditionally, mortgages required at least a 20 percent down payment. In other words, if you wanted to buy a $200,000 house, you would have to come up with $40,000 and the bank would lend you $160,000. While the bank expected you to pay your loan, they knew that if anything went wrong, they could take your $200,000 house, sell it at a discount, and still come out with their $160,000 back. Over the years, private mortgage insurance products made it possible for banks to lend you up to 100 percent of your purchase price. In this instance, they would give you $200,000, and if you defaulted on your home, they would get their $160,000 back by selling the home and get their $40,000 back from the mortgage insurance provider.
Today, so many homes have lost so much value that millions of homeowners now have the equivalent of $200,000 loans on $150,000 homes. Since the home has “negative equity,” no bank is willing to write a new mortgage on it since there is not enough value to make them whole if you do not make your payments. Many homeowners in this situation cannot make payments on their current loans, but could make the payments on their loan if they could just get the interest rate adjusted to today’s lower levels.
In an attempt to solve this program, Washington has come up with new Obama refinancing program options to help homeowners. If you have a Fannie Mae, Freddie Mac, FHA, VA or USDA Rural Development loan that you took out before 2009, the odds are that one of these programs can help you. Furthermore, all of them let you take advantage of today’s record-setting low interest rates.
As revised in February of 2012, the HARP program applies to most underwater Fannie Mae or Freddie Mac mortgages. This pool includes the vast majority of the American mortgages under $417,000 that are not part of the FHA, VA or USDA program. If you have an eligible loan and owe more than your property is worth, HARP is your ticket to taking advantage of today’s low rates.
While individual lenders can impose their own more stringent rules, HARP is very generous. It allows you to refinance your existing mortgage without an appraisal regardless of what your home is worth. HARP loans typically require a credit score in the 600′s and require you to have six months of current payment history and no more than one late payment in the first year. A HARP refinance will also need to leave you better off in terms of reducing your payment, switching you from an adjustable to a fixed loan or putting you into a shorter-term fixed loan so that you can be debt-free more quickly.
Government Supported Programs – FHA, VA and USDA
The popular low-down payment FHA loan has a refinance program for homeowners who owe more than their homes are worth. The FHA Streamline loan lets you take advantage of today’s low interest rates with only three requirements. Your payment must go down by at least five percent, the loan you are refinancing must have been taken out on or before May 31, 2009 and you must have a 12 month record of on-time mortgage payments. If you can meet these standards you can take out a streamline with no review of your credit or FICO score, no income or employment review and no appraisal. FHA has even reduced their insurance premiums to help you get more savings from refinancing. FHA refinance rates are also extremely low.
The VA’s Interest Rate Reduction Refinance Loan, usually called an IRRRL or Streamline, lets veterans and active-duty military personnel refinance their VA home mortgage. The VA does not require you to go through credit underwriting and does not require your home to be reappraised. You can include all of the costs in your loan, including the VA’s 1.5 percent funding fee, and you can even borrow an additional $6,000 for energy efficiency upgrades to your home. To qualify for a streamline, all that you need to do is to lower your monthly payment or change from an adjustable to a fixed rate loan or from a 30 to a 15 year loan, even if your payment goes up.
Approximately 235,000 people in 19 states that carry USDA Direct 502 mortgages or Guaranteed Rural Housing mortgages on rural properties can take advantage of the USDA’s streamline program. Like FHA, the USDA streamline just requires you to have a clean 12-month payment history and to refinance to a 30 year fixed rate mortgage with a rate that is at least one percent, or 100 basis points, lower than your current mortgage. Other than that, the USDA imposes no requirements. In other words, you can refinance regardless of the value of your home, the quality of your credit or your employment status.
These aggressive Obama mortgage programs put refinancing in reach for just about every American with a conforming mortgage of $417,000 or less. If you would like to lower your mortgage payment talk to a qualified lender about which program will work for you. They will let you know how much money you can save.
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