With mortgage rates at record lows, refinancing is an alluring option that can provide debt help by transforming a high-interest, adjustable-rate mortgage (ARM) to a low, fixed rate. You may think that doing so is impossible if your mortgage is greater than the value of your home, but thanks to government-sponsored refinancing programs, refinancing despite while underwater is actually possible.
The Make Housing Affordable program (MHA) was created by the Obama Administration to help homeowners avoid foreclosure. The organization's Home Affordable Refinance Program (HARP) is designed to help individuals who are unable to get traditional refinancing assistance obtain more affordable mortgages despite owing more on their mortgage than their home is worth.
To be eligible for HARP, you must not be delinquent on your mortgage payments. In addition, your mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae and must have been sold to Freddie Mac or Fannie Mae on or before May 31, 2009. Lastly, the current loan-to-value (LTV) ratio of the home must be more than 80 percent, meaning the program exists solely to help those with little or no equity.
FHA Short Refinance
Also sponsored by the MHA, the FHA Short Refinance program is designed to assist homeowners in refinancing into a more affordable and stable FHA-insured mortgage. Your mortgage lender must agree to participate in this mortgage refinance and it must agree to lower your owed amount to no more than 97.75 percent of your house's current value.
Eligibility requirements require that you must owe more than your home is worth and that your mortgage is not owned or guaranteed by the VA, USDA, Freddie Mac, Fannie Mae or the FHA. You must also be current on your mortgage payments and use the home as your primary place of residence. Your total debt cannot exceed 55 percent of your monthly gross income, and certain felony convictions within the last 10 years will also disqualify you.
Armed with the right information, refinancing an underwater mortgage is a real possibility that can vastly improve your debt situation.
About the Author:
Julie Bawden-Davis is a Southern-California-based writer specializing in personal finance and insurance. Since 1983, her work has appeared in a wide variety of publications, including Family Circle, Ladies' Home Journal, Parenting, Entrepreneur and The Los Angeles Times.