In 2007, the housing market experienced an extreme downturn. Homeowners lost a lot of equity and foreclosures skyrocketed. Even years later, homeowners still find themselves digging their way out of homes that are suddenly worth much less than the amount owed on the mortgage.
If you still owe more than what your home is worth, we’ve included information and programs below that you should consider before resorting to a “short sale”.
To learn more about HARP refinances and see if you qualify, fill out our quick 1-minute form to have a Mortgage Advisor contact you.
Under conventional wisdom, if you plan to stay in your home for at least another three to five years and your current interest rates are higher than current market rates, then you should refinance. But for homeowners who find themselves in an upside-down loan, this doesn’t seem like a realistic possibility. Traditional refinances don’t cover that situation and you can feel stuck. The following options, the Home Affordable Refinance Program and the FHA Back to Work program, can help get you into a better situation.
The Home Affordable Refinance Program
The Home Affordable Refinance Program (HARP) was created in 2007 to help offset the problems created by the economic recession. The federal government’s hope was that by implementing HARP, they could mitigate additional foreclosures and short sales. In order to make this happen, HARP allows people who are current on their mortgage to refinance under rules that did not exist previously. People looking to use HARP typically would not qualify for a traditional refinance due to their declining home values. With HARP eliminating the LTV rules, suddenly much more people have a viable option in front of them.
Qualifying for HARP
Keep the following rules in mind when determining if you’ll be eligible for HARP:
- Your mortgage must be owned by Freddie Mac or Fannie Mae. You can contact your current lender to determine this or visit their respective websites here or here.
- In order to qualify, your loan must have been sold to either party before May 31, 2009.
- Mortgages previously financed under HARP are not eligible unless they were done so between March and May of 2009
- You must be current on all mortgage payments to qualify for a HARP refinance. This includes no late payments in the last six months and no more than one late payment in the last years.
- You must submit proof that you’ll be able to make all payments on time. Proof usually comes in the form of tax returns, W2s, or bank statements.
- The new mortgage must improve your long-term ability to meet your loan payment obligations.
See if you qualify for a HARP refinance,fill out our quick 1-minute form to have a Mortgage Advisor contact you.
FHA Back to Work Program
If you don’t qualify for a traditional refinance and also don’t qualify for HARP, you may be eligible for the new Back to Work Program by the FHA. Under the initial standards of this program, it was possible for homeowners to qualify even if they’d had a foreclosure, bankruptcy, or short sale as long as all of those took place at least 36 months prior. With new standards in place, that time frame has dropped to 12 months, making it even easier for people to qualify for the program.
Here are some basic eligibility requirements a borrower must meet to qualify:
- You must have had a foreclosure, short sale, deed-in-lieu, loan modification, bankruptcy, or forbearance agreement.
- You must show that you’ve fully recovered from any of the above-listed events.
- Prior to closing on the new loan, you must complete housing counseling.
- You must prove that you had a minimum of a 20% household decline in income that corresponds with the qualifying economic event.
When All Else Fails
If you find that you don’t fit into the above programs because your income has not increased or you fail to meet other requirements for the programs, walking away from your home may be your last option. In order to prevent a foreclosure, you can talk to your current lender about the possibility of a short sale. A short sale is a sale where the lender agrees to accept the sale of the home for less than is owed on the current mortgage. Essentially, the lender is trying to cut their losses in the easiest and more pain-free method for both them and you.
Unfortunately, the short sale process, since it involves special agreements from the current lender, tends to take longer than a traditional sale. These types of sales have to go through several layers of internal approval. If the sale is approved, the homeowner is then only responsible for the difference on the loan, which means they will at least be only paying a much smaller amount than they had before, but you will no longer be able to reside at the home.
Your Local Rental Market
From a financial perspective, walking away from home ownership and reverting to being a renter can be rough. Renting a home of equivalent size to your home will usually cost anywhere from 20% to 30% more. Because of this, many people find they will have to downgrade the property they’ll reside in. While this obviously is not an ideal situation, it is an option that’s available to help you get out of a bad situation and on your way working back toward something better.
As a general rule of thumb, your monthly mortgage payment should not exceed one week of net pay. By following this rule moving forward, you will be able to avoid finding yourself in any of the above circumstances and can be on your way to having a healthy mortgage situation and a successful financial lifestyle.
See if you qualify for a HARP refinance, fill out our quick 1-minute form to have a Mortgage Advisor contact you.