Need Mortgage Refinance

With the new incentives for mortgage refinancing and loan modifications coming into existence since Barack Obama signed off on the new rescue plans for homeowners facing difficulty with their mortgages in the wake of the finance industry’s near collapse,  it can be quite confusing as to what is what in the mortgage refinance world.

One thing you should know for sure is that there are differences between the mortgage refinancing program from Obama’s initiative “Making Home Affordable’  and an earlier initiative that came from George Bush  the ‘Hope for Homeowners’ program.

Hope for Homeowners Program

This program is administered by the Federal Housing Administration and its key features are as follows:

• Mortgage is fixed rate and can be taken over a period of 40 years (recently extended from 30 years)
• Refinancing provides the possibility of reducing monthly repayments
• The agreement is entered into voluntarily by both lender and borrower

To be eligible for this loan certain criteria needs to be met:

• The house must be your primary place of residence and you should have no interest in other residential properties
• Your mortgage must have been in place before January 1st,2008 and you must have made at least 6 monthly payments
• You must be is a situation where you cannot make your current mortgage payments without assistance
• You cannot have been convicted of a fraudulent offense in the last 10 years, obtained a mortgage off the back of false claims or deliberately failed to make a payment on a debt
• You must maintain a full record and documented evidence of income and employment
• You have to be prepared to share the positive equity in your home, both current value and any future increases
• Your total mortgage payments, including capital repayments, interest and insurance will have been more than 31 % of your gross income from March 2008.

Constraints and payments:

• the loan to value ratio of your house can be no more than 96.5% (recently increased from 90%) on the understanding that your total mortage payments can be no more than 31% of your gross income and your total debt repayments can be no more than 43% of gross salary for equivalent time periods (e.g. monthly). This can be increased to 38% and 50% repsectively if the loan to value ratio is 90% or less.
• the interest rate will be based on current market rates and agreed between you and the lender
• there will be an initial mortgage insurance payment of 3% after which you will pay a 1.5% mortgage insurance premium as part of your monthly payments.
• You will also be required to pay closing costs on the loan, for an idea of what these costs will be you will be provided with a best estimate at the time of taking out the new loan.
• if you have a second mortgage and want to take out another mortgage under this program you will have to wait 5 years from the start of the first loan.
• This program ends on September 30th, 2011

These are the key features of this program, to find out further details and information you can talk to a FHA approved lender or a housing counselor.

Making Home Affordable

This program was introduced by Obama to try and get the American housing market back on line and the key features are as follows:

• there are 2 aspect to this initiative, mortgage refinancing and loan modification, it is the mortgage refinancing aspect that is comparable to the ‘HOPE for homeowners’ program which is why this is the aspect we will be looking at here. Refer to my previous post for ‘loan modification.
• Anyone who has an existing mortgage that is owned or guaranteed by Freddie Mac or Fannie Mae can be considered for mortgage refinancing  providing they meet the additional qualifying criteria.

Qualifying criteria for the ‘Making Home Affordable’ mortgage refinancing option:

• you have to be the owner of a 1 to 4 unit home
• your mortgage payments must be up to date (no more than 30 days late on a payment in the previous 12 months)
• your loan amount cannot exceed more than 125% of your house valuation (recently increased from 105%)
• you must be in a position where you can afford to make the repayments on the new loan albeit they should be lower than your current loan (this refers to a change in circumstance since you took out your current loan e.g. you may have lost your job and consequently income)
• refinancing improves the affordability or long term stability of your loan

Constraints and payments:

• Points and fees will be advised by the lender in accordance with their terms
• Interest will be set at market rates around the time of the loan.
• Anyone who is considered to be delinquent or has exceeded a  30 day late payment period more than once in the last 12 months will not be eligible
• Mortgage insurance is required only if your current loan includes private insurance
• The monthly payments by default will include an allowance to cover taxes and insurance.
• This program ends in June 2010

You are entitled to free advice from your lender or a HUD approved housing counselor for the ‘Making Home Affordable’ program never pay anyone for this service.

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