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FHA Short Refinance

[Sep 7, 2010.]


The Federal Housing Administration (FHA) is allowing mortgage lenders to refinance loans that are underwater if they agree to forgive at least 10 percent of the principal. The plan is part of the government's efforts to stem the tide of foreclosures around the country.

A second chance

The FHA Short Refinance and other programs are aimed at offering a second chance for assistance to up to 4 million homeowners by the end of 2012. Homeowners must qualify for the program. Participation of mortgage lenders and homeowners is voluntary.

It's estimated that millions of U.S. mortgage loans are currently underwater. Many people have had little success getting assistance from government programs designed to aid distressed homeowners. About 1.3 million homeowners who enrolled in the government's loan modification program have dropped out of the plan without a permanent solution to their mortgage woes.

Requirements to refinance

To participate in the FHA Short Refinance program homeowners must:

  • Refinance the home mortgage on their primary residence
  • Owe more on their mortgage loan than their property is worth
  • Have an existing mortgage that is not an FHA-insured loan
  • The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent and a combined loan-to-value ratio no greater than 115 percent

If you have a second lien on your property, the U.S. Department of the Treasury is offering incentives to those lien holders to fully or partially extinguish those loans.

Other alternatives to foreclosure

Even if you've given up hope of getting help with your mortgage problems it may be worth another shot to see if you can qualify for the FHA Short Refinance program. If you don't qualify, other alternatives include arranging a short sale. That's when your mortgage lender lets you sell your home for less that what's owed on the home loan. Many homeowners who are underwater have successfully used short sales to get out of mortgages they could no longer afford.

Talk with a housing counselor

A housing counselor can discuss other programs and resources that might be available to help you. You may not like the solutions offered to you, and you may have to make some difficult decisions about your housing situation. But ultimately, the goal should be to stop the financial bleeding if you are struggling with a mortgage loan and other bills.


About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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