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FHA Offers Alternative For Underwater Homeowners

Dennis Norman

Last week HUD announced changes to FHA home loan programs to provide refinancing options to homeowners who owe more than their home is worth. Under FHA’s new plan, existing underwater homeowners can refinance their existing non-FHA loan into a FHA loan as long as they are current on their loan and their current lender reduces their total mortgage debt by at least 10 percent of the loan amount.

The total mortgage amount for the borrower after refinancing cannot be greater than 115 percent of the current value of the home, bring the loan amount for an underwater borrower closer to the actual value of their home. I don’t believe this program is actually in effect yet, but it should be within the next few months.

Program highlights:

  • Existing loan must not be FHA-insured
  • Esiting lender must agree to writedown the principal loan balance a minimum of 10 percent and the final loan amount cannot exceed 115 percent of the current value of the home (including and second mortgages). The refinanced FHA loan cannot be greater than 97.75 percent of the value of the home.
  • The refinanced FHA loan will be on standard FHA terms
  • Existing lenders can retain second mortgages on the property, but only up to a combined 115 percent of the current value of the home.

Homeowner Eligibility:

  • Homeowners must be current on thier mortgage payments
  • Homeowner must occupy the home as their primary residence
  • Homeowners must qualify for new FHA loan under standard FHA borrower guidelines
  • Homeowners must have a FICO credit score of at least 500

I will write more about this program and give more details as they become available.

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