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Government Refinance Assistance Programs Help (Some) "Underwater" Homeowners Refinance

[Jun 5, 2009.]


Many homeowners who owe more on their mortgage than the value of their house, termed "underwater," do indeed feel like they are financially drowning. The news is full of reports of low interest rates, but they cannot refinance to said low rates because they have no equity in their house.

The Obama Administration's "Making Home Affordable" efforts may help exactly that group of homeowners refinance and even save their homes from foreclosure. However, it's important to research government mortgage assistance programs ahead of time, know the rules, and be prepared for the process.

"Home Affordable Refinance" Program Allows Refinance Up to 105 Percent of Home Value

Although there has been some talk of increasing this limit, it currently stands: the Home Affordable Refinance program allows underwater homeowners to refinance up to 105 percent of the value of their home.

Typically, lenders only allow homeowners to borrow 80 percent of their home's value. Therefore, this government program can make a huge impact for certain borrowers.

On a $300,000 mortgage, a refinance that resulted in a two point interest rate drop would make a difference of more than $300 per month, reducing a mortgage payment from $1,995 to $1,610, according to the loan calculator at Calculators4Mortgages.com.

That's a big deal for someone making that payment.

 Government Guarantees Mortgages, Reducing Lender Risk

It's important to realize that the Home Affordable Refinance program does not mean that the government is making any loans. Rather, the government is guaranteeing loans run through the program so that banks are not afraid to lend at a higher loan-to-value ratio than they normally approve.

Why would a lender agree to loosen its rules like this? Bank foreclosure costs.

A foreclosure can cost a bank $60,000 or more per property, plus the bank doesn't want the house, so a government guarantee on a loan often looks pretty good from the lender perspective.

BUT--Refinance Rules Rule Out Many Borrowers

This program can't help every underwater homeowner. Rules include and are not limited to:

-- Only applies to owner-occupied property (no rentals)

-- Borrowers must qualify according to other mortgage underwriting guidelines (income requirements, for example)

-- Borrowers must not already be delinquent on mortgage payments

-- Mortgage amount must be $417,000 or less

Correspond With Mortgage Servicer ASAP If Interested

Government phones across the nation are lighting up with phone calls regarding this refinance assistance program. Borrowers who are interested in participating can save themselves some muzak-filled waiting time by calling their mortgage servicer directly.

The company to which borrowers make mortgage payments must be willing to cooperate with this program in order for a Home Affordable Refinance to be possible. Some lenders are more cooperative than others.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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