With the recent popularity of Adjustable Rate Mortgages and Interest Only mortgages followed by a rise in rates we have seen epidemic amounts of foreclosures as home owners try to cope with higher payments. Many homeowners are delinquent on their mortgage and fear that because of the damage to their credit scores they will not be able to refinance. A new FHA program may be the answer to their problems.
The Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family, multifamily, manufactured homes and healthcare facilities. FHA-insured mortgages do not come with prepayment penalties, have no teaser rates nor balloon payments. They are offered at market rate with terms up to 30 years and are fully amortized, meaning that you pay towards principal and interest every month.
How can FHA help homeowners keep from losing their homes?
FHASecure gives homeowners with non-FHA adjustable rate mortgages (ARMs), whether current or delinquent and regardless of reset status, the ability to refinance into an FHA-insured mortgage. With the new FHASecure program, the lender will not automatically disqualify you because you are delinquent on your loan, and the lender may offer you a second mortgage to make up the difference between the value of your property and what you owe.
This program is available whether your current or delinquent on your mortgage payments. In fact, FHA encourages homeowners facing reset to refinance before they fall behind. But even if you do fall behind, you may be eligible. There isn't a limit on how far behind you can be on your mortgage or how many payments you've missed. Whether you're current, one month behind or multiple payments behind, the amount you can refinance will depend on the value of your property and how much you owe and if the lender, or another eligible source, is willing to take back a second mortgage to help bridge the gap between what is owed and your home's value.
Interest-only mortgages are also eligible for the FHASecure program. If you are current on your mortgage, you are eligible for an FHASecure refinance; and if you are delinquent, the default must have been due to the payment shock of an interest rate reset or, in the case of an Option ARM, the "recasting" of the mortgage to fully amortizing.
If your current mortgage has a prepayment penalty you will need to take a look at the equity you have in your home. If you do not have sufficient equity in your home that would allow you to include the prepayment penalty and/or other refinancing costs into your new FHA mortgage, then you should ask your lender to consider a second mortgage to pay the difference or negotiate a short payoff on your existing loan. Offering either of these options is at the discretion of the lender.
Facing Foreclosure?
It is possible that FHASecure may help homeowners already in foreclosure but each situation is unique and depends upon the value of your home and how much you owe, and if the lender is willing to offer a second mortgage. Homeowners facing foreclosure are strongly encouraged to talk with their lenders, possibly with the assistance of a HUD-approved housing counseling agency, to determine the best course of action. To find a HUD-approved housing counselor, please call 1-800-569-4287 or search online at www.fha.gov/fhasecure.
FHA does have maximum loan limits that are vary by location. FHA's geographical loan limits and how much it can insure are established by law. Although the FHA-insured mortgage cannot exceed those loan limits, when a lender is willing to combine a first and second mortgage, the amount of the second could exceed the maximum loan limit for your area.
If the value of your home is now less than what you still owe the mortgage lender considering the refinance would have to be willing to accept a short payoff on the existing loan OR to hold a second mortgage to make up the difference needed to pay off the existing mortgage and the home's value.
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