July 12, 2011

The Home Affordable Refinance Program: Loan Modification Versus Refinance – Which is Right For You?

Homeowners have watched anxiously as the values of their homes have decreased dramatically. Historically, when home values have dropped, we have seen the housing market bottom out and gradually begin to rise again. However, in our current economy there is no indication that homeowners are going to be able to recover from the enormous discrepancy between what they paid for their home and its current actual value. Approximately 25% of Americans are carrying mortgages that are underwater. And, many Americans are beginning to ask themselves whether they should stay in a home with an underwater mortgage or if they should just walk away.

Loan Modification vs. The home affordable refinance program – Can be done at no cost vs. Borrower pays closing costs.. No appraisal needed vs. Appraisal required. No escrow or title required vs. Escrow and title required. Almost always features lower interest rate vs. Rate subject to current market conditions. Completion time-30-180 days vs. 30-60 days. Credit score not important vs. Credit score criteria must be met. Lower home value can work in your favor vs. Declining home value may disqualify. Must verify income vs. Must verify income

There are, however, some limited options for underwater homeowners. The Federal Housing Authority (FHA) and The home affordable refinance program (HARP) may offer opportunities to refinance. In order to qualify for these options, homeowners must be current on their mortgages. People who are delinquent with their payments need to try one of the loan modification programs first. The FHA and HARP programs are designed to help lower monthly mortgage payments. The biggest drawback to these programs is that the bank who holds the current loan must agree to write off a percentage of the mortgage principal. Many banks have been unwilling to do this, frustrating homeowners that are continuing to make payments on a home with negative equity.

Home Affordable Refinance Plan: Designed for homeowners who are not delinquent, but who are unable to take advantage of the current low fixed rates due to loss of home value. The current loan must be owned or serviced by Fannie Mae or Freddie Mac to qualify. The loan amount can be up to 125% of the homes current market value. Proof of income and appraisal may be waived or required-as determined by each lender. Home Affordable Modification Plan: A standard program with a streamlined application process, this loan workout option does not require any equity, escrow or appraisal. The loan does not have to owned or serviced by Fannie Mae or Freddie Mac, but the lender must be participating in the program. Homeowners can be delinquent or not, but they must provide evidence of a financial hardship situation. They are also required to provide proof of their income, expenses and assets.

All of this information is reviewed and a determination is made if the borrower is eligible. Since the approval guidelines and modification terms are standard for everyone, homeowners can increase their chance of success by taking the time to learn how to properly prepare their application before contacting their lender. Struggling homeowners should take the time to research all of their options to determine which program they can qualify for and which option will be the most beneficial. A loan modification can be the answer to a lower monthly loan payment by lowering your interest rate, lengthening the term or other features designed to help you avert foreclosure. Take the time to research, learn and prepare before you make any decisions affecting your home and family.

Learn more about Obama Mortgage Relief Plan Qualifications.