Recent news reports are bringing a great deal of interest in a new FHA program designed to help homeowners who are “underwater” on their mortgages. The new program modifies the Making Home Affordable program and the FHA’s own refinancing programs, allowing FHA lenders to offer FHA refinancing loans that forgive at least 10% of a qualifying borrower’s original mortgage principal.
These loans are for home owners making payments on a conventional or sub prime mortgage for a property not worth as much as the borrower owes on the original loan (also known as a “negative equity position”.) To qualify, applicants must owe at least 15% more on the property than it’s actually worth.
According to a press release by the FHA, the program is “designed to maintain home ownership by providing borrowers, who owe more on their mortgage than the value of their home, opportunities to refinance into an affordable FHA loan.”
The new program offers important help for those who qualify—ten percent a respectable amount of money to have taken off any amount owed on a mortgage—but the Department of Housing and Urban Development reminds potential borrowers that this particular refinancing program is only for those who are current on their mortgage payments.
There are other FHA requirements for this refinancing loan, including residency—the borrower must be living in the home being refinanced as their primary residence. The borrower must qualify with a credit score of at least 500.
It’s also important to know this FHA program is designed for homeowners with conventional or sub-prime loans. It is not intended for borrowers with FHA mortgages. There is also a time limit on this program; qualified borrowers may apply for refinancing for loans with case numbers issued on or after September 7th 2010 and closed on or before the end of 2012.
This refinancing program can help homeowners avoid default and foreclosure on an existing conventional or sub-prime mortgage, but FHA requirements for lenders include a warning that borrowers should be aware of: the FHA requires lenders to inform applicants that this loan forgiveness program may, “be reflected as a negative feature on a borrower’s credit score.” The FHA also advises borrowers to check with a tax professional to learn what tax implications might come with having 10% or more of the original home loan amount forgiven.
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