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Can You Refinance With Negative Equity if the Home Is Not Freddie Mac or Fannie Mae?

Written By video massa on Sabtu, 26 Oktober 2013 | 07.03

In March 2010, the Making Homes Affordable Program was amended by Congress to assist more homeowners who have negative equity in their homes due to the recession. Under the new program, to be eligible for a refinance if you have negative equity in your home, it does not have to be originally financed through Fannie Mae or Freddie Mac, but it does require the voluntary cooperation of your lien holder.

Requirements for You

    To be eligible for refinance, your loan must meet certain requirements. You must apply and have received a case number on or after September 7, 2010, and the case must be closed by December 31, 2012. For your loan to qualify, you must be current on your mortgage; you must live in your home of one to four units; you must qualify for the loan under Federal Housing Administration underwriting guidelines; it cannot be an FHA loan; and you must have a Fair Isaac Corporation-based credit score of greater than 500.

Other Requirements

    Once refinanced, the first mortgage on your FHA-insured loan must have a loan-to-value ratio of no more than 97.75 percent. If you have more than one mortgage, the subordinate loans, once refinanced, must have a loan-to-value ratio of no more than 115 percent, including the first mortgage. If your loan receives a "refer" risk classification and/or is manually underwritten, your total monthly mortgage payment, including secondary loans, cannot exceed 31 percent of your gross monthly income. Your total debt, including recurring debt, cannot exceed 50 percent of your gross monthly income.

Prohibited Transactions

    FHA mortgagees are not allowed to use this premium pricing to assist you in paying off existing debt obligations so you can qualify for the refinance. They are also not allowed to make mortgage payments on your behalf, or do anything else for you, to bring the loan current so you qualify for the program. Your existing loan also cannot be brought current by the original lien holder except under the conditions specified in the program.

Other Program Aspects

    If you qualify, your new FHA mortgage can only be used to refinance the unpaid principal balance of the existing loan, plus any interest charged by the servicing lender if the payoff amount will not be received by the first day of the month. Any closing costs, prepayment penalties, late charges, escrow shortages, prepaid expenses or discount points must be written off by the existing first lien holder, in addition to 10 percent of the principal balance. The loss to the existing lien holder will be reimbursed by funds established under the Emergency Economic Stabilization Act of 2008.



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