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Refinance My Home

Income compared to Debt

Without refinancing, I may lose my house!

If you just happen to live in Pennsylvania, you may be blessed. That is the only state with a program in place that can help you out with a minimum of back-end problems. The Pennsylvania Housing Finance Agency's emergency mortgage assistance program was created in 1983. It provides loans of up to $60,000 for as long as 36 months to Pennsylvania residents suffering financial hardship, due to job loss, divorce or medical problems. The PHFA has enjoyed an 80% success rate in helping Pennsylvanian homeowners avoid foreclosure.

Nice, but I don't live in Pennsylvania.

If you happen to have any equity left in your home, you are one of the few lucky ones. In your case you have more options than most. With more than 20% equity you can do a Traditional Refinance, get a Home Equity Line Of Credit (HELOC), or do a Debt Consolidation loan to minimize your cash-flow situation without going through Debt Settlement. If this sounds like you, send us an email with your basic information, and we will do what we can to help you find the loan you need. There are plenty of ads for low rates, but they are mostly for those with perfect conditions. (We'll look for the lowest rates with the best terms and the least headaches we can find that match your personal situation.)

According to Broderick Perkins with Move, Inc. as posted on Realtor.com, refinancing your mortgage can provide you with a monthly windfall of extra cash, shorten the term of your mortgage and help you build equity faster. The refinanced mortgage also includes points and other costs.

When you refinance your original mortgage, you swap it for another, often because the rate of the new mortgage is cheaper. With the cheaper rate comes smaller monthly payments and extra cash each month.

The refinanced mortgage could also save you the cost of Private Mortgage Insurance. If you put less than 20 percent down on your original mortgage, your lender likely saddled you with the coverage. If your refinanced mortgage is less than 80 percent of your home's value today (a likely scenario given current appreciation rates) you won't have to pay the PMI (insurance) premiums of $50 or more a month.

Perkins Also suggests you consider refinancing to change the term of the loan. While a shorter term loan's monthly payments may be higher, you'll build equity faster and save hundreds of thousands of dollars over the life of the loan.

But I'm underwater and I can't refinance at this time!

You are not alone. Over 25% of homeowners are underwater, also referred to as negative home equity. There are currently about $1.2 trillion in home mortgages with rates of 6% or higher, whose owners would do anything for a 5% or less new mortgage.

According to Mahesh Swaminathan (senior mortgage strategist at Credit Suisse, an investment bank) due to the tightening of lending norms by banks, unemployment, and declining incomes, homeowners are unable to take advantage of the fall in mortgage rates which would normally drive borrowers to aggressive refinancing. Other analysts also point to the hike in loan fees by Fannie Mae and Freddie Mac.

Plan A: Don't give up hope!

If you happen to have a Fannie Mae or Freddie Mac loan now, and if you haven't been delinquent in the last 12 months, the government's Home Affordable Refinance Program (HARP) may be just your thing. The HARP program will allow qualified borrowers to refinance with less than 20% equity, including underwater loans of up to 125% of the home's value. Your payment history, your credit score, and a few other factors come into play; they don't want you to be a step away from foreclosure for this program. Refinancing through HARP can often shave $300 to $500 off a monthly mortgage payment, so it may be worth checking into.

Do you qualify?

The HARP Eligibility Calculator to the right may help you find out!

If you need assistance figuring out the qualifications, there is a "Loan Lookup" tool and other calculators at the government's web site. President Obama has extended HARP through December 2013.

Plan B: HAMP.

Since you are still reading, I have to assume that the government's Home Affordable Modification Program (HAMP), covered above on this web site, may not work for you. By the way, the government actually pays an incentive to the lenders in an effort to encourage the modifications. A HAMP Loan Modification is a change in your current mortgage terms, agreed to by your lender, to make it easier for you to make your monthly payments. A HAMP modification would change your interest rate and your payments, but you would still owe the same principal. In other words, it merely changes the way you pay your mortgage off. If you would like to readdress this option, please go here.

Plan C: I'll negotiate my own loan modification.

What do you have to lose? If you don't qualify for either HARP or HAMP, there are no government backed refinancing options available that I am aware of. If you qualify, you may want to consider government insured loans through the Federal Housing Administration (FHA) or the Veterans Administration (VA). Otherwise, as an alternative to foreclosure, many lenders are in such bad financial shape that they are willing to offer some kind of loan restructuring just to avoid another non-performing asset on their books. Jason Bonarrigo, senior mortgage banker with Wells Fargo Home Mortgage of Boston says, "Whatever you do, don't bury your head in the sand."

FYI: Most do it yourself modification attempts so far have failed due to borrowers simply not knowing what to do, making simple mistakes, and getting bullyed by lenders who want as much of your money as they can get. (That is their business after all.) Your lender knows you only get one shot at a loan modification, and may try to sabotage your honest effort. In an effort to help out, we have a solution to improve your chance of success many-fold, and to help you get the best deal you can. Please check out this do it yourself assistance.

Plan D: I have too much equity for any of the special plans available, but I'm still getting behind, what can I do?

Since you actually do have some equity, there are a few options for you that may others don't have.

The Federal Reserve surveys 55 domestic banks and 23 U.S. branches or agencies of foreign banks. Although financing has been strained since 2007, most large banks have recently stopped tightening their loan standards. Unfortunately, it's not getting easier to refinance because they aren't loosening anything, so the standards are still tight.

Just the same, according to HSH.com, typical rates on 30-year fixed-rate mortgages were at 3.49% as of December 2012. What this means is that if your current mortgage rate is around 5%, it may be possible to lower your monthly payment by nearly $100 for every $100,000 of your current mortgage by refinancing with the lowest rate available today.

Another possible option comes into play if you are still paying PMI (private mortgage insurance) and your equity is 20% or greater. PMI usually costs between .5% and 1.5%, and federal law demands your PMI payments automatically stop when your equity reaches 22% ... assuming your monthly payments are up to date. But the bank likes your money and is not likely to cancel your PMI if you don't request it be cancelled in writing ... the moment your equity reaches 20%. If this is you, then you stand to save as much as another $100 for every $100,000 of your current mortgage.

With equity in the home you may also qualify for a "Cash-Out" refinancing. What is a cash-out refinancing? Well, it is simply the refinancing of your home for an amount greater than you owe on it, and receiving the difference in cash. This is handy if you need cash for some important life event: to pay off some high-interest credit card debt, significant unexpected medical bills, or possibly a son or daughter starting college or starting a good business; and if doing so will also make it possible to keep your mortgage payments current. Getting a cash-out refinance could give you an infusion of money just when you need it most, but it will also cost you in the long run due to the extended interest payments you will be covering it with.

What all this means is that there is money out there, it just hasn't been getting into the right pockets, which is to say, those of the Americans that need it most. If this sounds like you, send us an email with your basic information, and we will do what we can to help you find the loan you need. There are plenty of ads for low rates, but they are mostly for those with perfect conditions. (We'll help you find the lowest rates with the best terms and the least headaches, and that matches your personal situation.)

Plan E: Reality Check

If after considering all the options above, there is no way to restructure your mortgage, then you may want to consider the possibility of a Short Sale (selling your house at market value while having the lender write off the remaining loan balance, so you don't owe them anything; then buy a new home.)

According to Jason Bonarrigo, senior mortgage banker with Wells Fargo Home Mortgage of Boston, "A short sale is preferable to foreclosure, (because) it's less of a negative impact on your life, and given today's (financial) climate, banks are open to it."

If you still don't like your reality, please consider one of these other options.


More Discussion - FAQ:

Q.   Why don't states other than Pennsylvania have an emergency mortgage assistance plan if it works so well?
A.   In February of 2010, President Obama announced a $1.5 billion initiative that gave money to the states hardest hit by the mortgage crisis: Arizona, California, Florida, Michigan and Nevada. The initiative empowers the states' housing authorities to assist homeowners who are jobless and underwater (they owe more than their homes are worth). California, Delaware, Florida, Massachusetts, Nevada and North Carolina have been in touch with Brian Hudson (the PHFA's executive director) to learn more about Pennsylvania's program. So there may be a few more programs in the future, but there is little to nothing in place like the Pennsylvania program that will help right now.

Q.   Why isn't there a national emergency mortgage assistance plan like Pennsylvania's?
A.   Fannie Mae started a similar program called 'HomeSaver Advance' in 2008. It provided unsecured loans of up to $15,000 that borrowers could use to clear their arrears following a temporary hardship. Figuring out who's problems were temporary and who's were long term turned out to be problematic. Re-default rates climbed to about 70%, with foreclosure prevention only improving by 3%. So Fannie Mae had no real choice in redesigning the program. We'll have to give it some time to see the results.

Q.   How does the Pennsylvania program work?
A.   According to Brian Hudson (the PHFA's executive director), When a borrower falls behind on their mortgage, they receive a foreclosure notice from their lender with a list of housing counselors who may be able to help them. The counselor then collects the borrowers' current financial information and forwards it to the PHFA. Homeowners suffering temporary hardship beyond their control are reviewed for the loan program.

The success has been due to careful inspection of an applicant's financial background, and an annual review. To be approved, an applicant must have a reasonable expectation of resuming full payments within 36 months, and expect to continue paying the mortgage in full. If the homeowner is likely to get a job within a reasonable amount of time, and their other bills are under control, they can likely get help. If the applicant has a history of over-extending and maxing-out their credit, they are not likely to get approved. The HomeSaver Advance program of Fannie Mae was more 'politically correct' and less 'business correct' in their borrower criteria.

Q.   I don't need to refinance, but the rates look pretty good; should I refinance?
A.   Maybe, maybe not. There are a few things to consider:
  • How much time is left on your current mortgage?
  • Will extending it end up costing me more in the long run?
  • What are the hidden costs that get rolled into the loan?
  • Will all the costs (points, application fee, loan origination fee, appraisal fee, attorney fee, credit report, extra insurance, inspections, private mortgage insurance, recording fee, survey, title insurance, underwriting, tax differences and other costs) add up to more than the savings (based on how long you intend to stay in the house)?
  • Do I save more with less points (a point is 1% of the amount financed) and higher interest, or more points and lower interest?
[Note: If you would like to discuss this with an expert, please send us an email with your basic information, and we will do what we can to help you find the loan you need.]

Q.   Where can I find an FHA lender?
A.   You can find an FHA lender at their Web site.


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