How Does FHA Short Refinance Program Works For The Borrowers?
The federal housing administration’s refinance of borrowers in the sense of negative equity positions program is generally called the F.H.A. short refinance and it enables the borrowers who are in debt more than their original worth of homes to refinance a F.H.A. loan with the help of monthly payment at lower level. But the lender participation in the F.H.A. program is elective not compulsory. Under the Federal Housing Administration program almost 4600 loans have been originated for almost 1.5 million borrowers.
Definition of the short refinance:-
Basically short refinance is an agreement in which the bank or mortgage lender of the borrowers agrees to pay off the existing mortgage and replace that mortgage with a new loan by a reduction of balance for purpose of helping the borrowers to avoid the foreclosure. The short refinance basically helps the bank and homeowner both because through short refinance the bank loses less than the foreclosure and the homeowner also get free from the loses. Short refinance is always across the process of short sale and it involves the selling of homes for less than the original price and value and include the refinance term and rate in which homeowners can replace the old loan with a new loan.
For the short refinance program the homeowner would refer to bring the more money to accomplish the traditional refinance because the lenders and banks do not offer 100% financing. Short refinance can be a huge obstruction for the homeowners who are looking for the advantage of the low mortgage rates which are currently on the offer especially those borrowers who are experiencing difficulty for paying the mortgage every month.
The short refinance is a good solution for those homeowners who are distressed because short refinance reduce the loan balance below 100% but short refinance also starts with a fresh interest rate lower than the interest what borrower had before. In the result the monthly mortgage payment is significantly reduced. But as well as the drawback of the short refinance is to convincing the bank to offer the short refinance but it is not necessary in the interest rate of the borrowers till then borrowers are completely ensured that foreclosure will be more expensive for the borrowers and homeowners.
To get a short refinance it takes months and there is never any guarantee. Once if it is granted the bank certainly settled the old debt of the borrowers for less which mostly hit the credit score of the borrowers. The impact of the short refinance mostly remain similar to the foreclosure or short sale but it is not necessary that it would be worse than the alternatives especially if homeowners and borrowers are not able to maintain with the payments of mortgage.
Here are some of the situations in which the homeowners and borrowers can qualify for the FHA program;
- The homeowner should be present in a negative equity position.
- The homeowner should be current on the existing refinance which is to be refinanced.
- The homeowner should contain the property of 1 to 4 units as their primary residence.
- The homeowner have to qualify for the new loan under the standard FHA underwriting requirements and should be possess a FICO based decision credit score which should be greater than or equal to 500.
- The existing refinanced loan should not be the FHA insured loan.
- The existing first claim holder should be write off at least 10 percent of the unpaid principal balance.
- The refinanced FHA insured first mortgage should have a ration of loan to value which should not be more than the 97.95%.
- The non-extinguished existing subordinates of mortgages should be re-subordinated and the new loan could not have a combined loan to value ratio greater than the 115%.
- The mortgagees of the FHA are not allowed to use the premium pricing to pay off the existing debt obligations to qualify the borrower for the new loan.
- The mortgagees of FHA are not allowed to make payments of mortgage on the behalf of the borrowers.
The FHA short refinance also helps for the Non FHA borrowers:-
From the 7 September 2010 the FHA offers the help option to qualify for those non FHA borrowers who are underwater because of their home loans. The FHA short refinance option is open for those homeowners who are present on their mortgage but as well lender should be agree to leave at least 10% of the unpaid principal on the real note for the purpose of bringing the combined loan to value ratio to the maximum 115%. According to new FHA guaranteed loan a loan to value ratio should not be more than the 97.75%. Those non FHA borrowers who qualify for the certain guidelines are allowed to apply to refinance into a new FHA insured home loan. FHA short refinancing is only for those borrowers who are underwater on their properties which is considered the primary residence of the borrowers and is applicable only for those with non FH guaranteed home loans.
Advantages of the short refinance:-
- It keeps the home safe for the homeowners.
- Homeowners get a reduced mortgage balance.
- Homeowners get equity in their houses.
- Short refinance reduces the monthly payment.
Disadvantages of the short refinance:-
- It hurts the credit score of the homeowners.
- Short refinance is time consuming.
- It has no guarantee.
Homeowners need to qualify for the short refinance with full documentation.
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