Much Depends On Whether You Also Want To Refinance Your First Mortgage
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Lea Uradu, J.D. is graduate of the University of Maryland School of Law, a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, Tax Writer, and Founder of L.A.W. Tax Resolution Services. Lea has worked with hundreds of federal individual and expat tax clients.
You could be thinking about refinancing your existing home equity loan for several reasons. You might want to reduce your monthly payments by getting a lower interest rate or extending your loan term. Or you might instead want to shorten your loan term, so you will pay less total interest in the long run and become free of debt sooner. You might even want to take more cash out of your home’s equity for a large purpose or remodel.
Whatever your reason, here are your options and the main steps you need to take in each case.
Mortgage Stimulus Program And Other Good News For Homeowners
For many, theres never been a better time to be a homeowner. Home prices are rising very quickly and, even if youre struggling to keep up with payments, various mortgage refinance programs are standing by to help you out.
Mortgage rates are near all-time lows and homeowners could stand to save significantly on their monthly payments. But what if youre blocked from refinancing because your mortgage balance is close to your homes market value or is even higher? Well, there may be good news for you, too.
Fortunately, home values have been rapidly rising across the country. Fewer and fewer homeowners are underwater.
As a result, many homeowners may be eligible to refinance, even without a special program like HIRO or FMERR. Its worth checking your refinance eligibility to determine whether you could benefit from low-interest rates and a reduced monthly payment.
Streamline Refinance Your Government
Youve probably heard of refinancing, which is the act of securing a second mortgage to pay off your first. There are plenty of reasons for this, including changing your rate terms or rate length.
Streamline refinances are available for government-backed loans. Unlike typical refinances, streamlined refinances require limited credit documentation and underwriting, which may make them easier to achieve. Be aware that your loan must be current in order to qualify for a streamline refinance.
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How Do Government Refinance Programs Work
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When it comes to refinancing a mortgage, many homeowners want a lower interest rate or monthly mortgage payment that improves their cash flow. For those without a conventional loan, there are multiple government refinance programs available that can help make this possible often without the need for credit underwriting or a home appraisal.
A mortgage refi means youre replacing your existing mortgage with a new one that hopefully has better terms or improves your finances. Thats why its crucial to weigh your options before moving forward.
Hire A Home Inspector
When you decide on a home you like and make an offer, have the home thoroughly inspected. You want to make sure there arent structural issues or anything else that could affect the livability of your new place. Inspections usually take a few hours, and cost a few hundred to a few thousand dollars, depending on the size of the home. The cost is entirely worth it, however forgoing this part of the transaction would be a mistake.
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What Is Harp 20 And How Does It Work
HARP 2.0 is for FMERR and HIRO-backed mortgages. Individuals whose houses are not underwater can also use HARP 2.0. In addition, people with balloon mortgages may be HARP-eligible depending on whether their loans are conforming and backed by Freddie and Fannie.
However, HARP 2.0 is not meant for Alt-A and jumbo mortgages. These two are loan types rumored to be included in HARP 3.0, which has not materialized. It is also worth noting that HARP 2.0 does not forgive mortgage balance or reduce your principal. The program only refinances your current loan.
Types Of Reverse Mortgages
- Federally Insured Reverse Mortgages – Known as Home Equity Conversion Mortgages
- Proprietary Reverse Mortgages
- Single Purpose Reverse Mortgages
When finding a lender remember:
- Be suspicious of anyone claiming that you can own a home with no down payment
- Seek out your own reverse mortgage counselor
- Never sign anything you do not fully understand
- Make sure the loan is federally insured
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Fmerr Eligibility: Qualify For Mortgage Relief And A Lower Interest Rate
You may be eligible for FMERR if:
- Your current mortgage is owned by Freddie Mac*
- Your loan was originated on or after November 1, 2018
- Your LTV is at least 97.01% for a one-unit, owner-occupied resident
- You have made all your payments on time in the last 6 months
- Your mortgage balance is 97.1% or higher as a percentage of your homes market value, for a one-unit, owner-occupied dwelling
*You may not even know that your mortgage is owned by Freddie Mac. If youre unsure, use this lookup tool on the Freddie Mac website.
If you meet these conditions you are very likely to have access to lower rates but you need to act now before rates go up. Speak with your mortgage lender about relief options.
How Does Refinancing Help The Economy
Millions of homeowners who refinance could see hundreds of dollars in savings each month, but that money does more than just help individual families. Those homeowners will have more money to pay bills, more money to spend in shops and restaurants in their communities, or more money to save for college or new car. In turn, this spendingmade possible by refinancingwill benefit our entire economy, and help spur the growth we need.
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What Are The Benefits Of Hope
The benefits of participating in HOPE for Homeowners include
- Keeping your home
- Getting a 30-year fixed-rate mortgage
- Lower monthly mortgage payments which do not change
The 30-year loan is extendable in some situations. Extending the terms to 40 years is helpful in cases where the homeowner has a large amount of debt the 40-year term reduces mortgage payments further. There are requirements and restrictions on these extended loans. Check with your lender to see if you qualify for the 40-year loan terms under the HOPE program.
The HOPE for Homeowners program ran until September 20, 2011.
Is There Congress Mortgage Stimulus Or Covid
Although theres no current mortgage stimulus from Congress, there is federal help available for homeowners.
When President Joe Biden signed the American Rescue Plan into law in March 2021, it famously included stimulus checks to nearly all households. It also provided special financial assistance for homeowners who were or are struggling financially as a result of the COVID-19 pandemic.
The Homeowner Assistance Fund is intended to help with your monthly mortgage payments and with property taxes, homeowners insurance, homeowners association fees and utility bills.
Although these are federal funds, theyve been sent out to states to administer. For help, you apply to your states housing finance agency. Locate your states agency and contact information with this lookup tool.
There are some eligibility requirements for these funds. To qualify, your mortgage balance must be $548,250 or less, and most of the funds are designated for borrowers with average or below-average incomes.
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Fannie Mae High Ltv Refinance Option
Fannie Maes High LTV Refinance Option is a program that caters to borrowers with conventional loans owned by Fannie Mae. LTV stands for loan-to-value ratio, which is the percentage of a homes value that is financed through a mortgage.
Key requirements include having a minimum LTV ratio of 97.01%, and a mortgage that is at least 15 months old.
Fha & Va Streamline Government Refinance Programs
Lastly, if you have a FHA, VA or USDA home loan you may qualify for streamline refinancing. Many of these programs allow you to qualify for mortgage refinancing without getting an appraisal, verifying employment or documenting income. The main benefit of a streamline refinance is a simpler process to refinancing and reduced fees. Youll have a choice of 30-year fixed, 15-year fixed refinance rates or Adjustable Rate Mortgage loans.
As with any Government Refinance program there are requirements to meet for a streamline refinance and you need to be current on your payments. FHA streamline refinance applications are handled by lenders so enlisting the help of a good mortgage broker can get you qualified while avoiding unnecessary fees. If youre a member of a community-based credit union thats also a good starting point for your mortgage shopping.
If you have a VA or USDA mortgage loan youll want to contact those agencies directly to find out more. You can learn more about the VAs Interest Rate Reduction Refinancing Loan by contacting the Veterans Administration at 1-800-827-1000. If you have a USDA mortgage loan you can reach a Rural Development Staff Member at 1-800-670-6553.
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Gst/hst New Housing Rebate
You may qualify for this rebate allowing to recover part of the GST or HST that you paid on the purchase price or cost of building your new house, on the cost of substantially renovating or building a major addition onto your existing house, or on converting a non-residential property into a house.GST/HST New Housing provides all of the details on this rebate.
How A Mortgage Refinance Relief Program Works
The idea behind a mortgage relief refinance program is to help homeowners lower their mortgage rates. In turn, their monthly payments become more affordable.
Relief refinance incentives have helped millions of homeowners avoid mortgage delinquencies and even foreclosure.
But why are relief refinance programs necessary in the first place?
Well, typically, homeowners cant refinance unless their mortgage is below a certain loan-to-value ratio . That means they need a minimum amount of home equity and borrowers who made a very small down payment when they purchased the home, or whose home values have fallen, might not meet the threshold.
Luckily, a relief refinance solves this problem.
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Best Mortgage Refinance Assistance Programs
There are multiple mortgage refinance assistance programs available to borrowers. In general, the goal of refinance assistance programs is to help borrowers obtain more affordable mortgages or exit their existing mortgage with as little hardship as possible. There are different types of refinance programs depending on your situation plus each program has different eligibility and qualification requirements. Some programs are focused on borrowers who can afford their mortgage payment but who have limited equity in their home, which makes it very challenging to refinance.
The tables below summarize numerous refinance assistance programs. Click on the program title to review more detailed information about each program. It is important to understand how each program works as well as their eligibility and qualification requirements so you can determine the best refinance assistance program for you.
- The HARP 2.0 Program is no longer available as of 2019
- The HARP 2.0 program was designed to help homeowners who are current on their mortgages but whose homes are underwater
- If your house is underwater it can be almost impossible to refinance your mortgage without using a program such as HARP 2.0
- HARP 2.0 was designed to help borrowers refinance into more affordable, more stable mortgages
Hamp If You Cannot Afford Your Payments
HAMP is not a Government Refinance Program but is a loan modification program. HAMP is the acronym for the Home Affordable Modification Program. If you qualify for HAMP your lender will cut your mortgage payment to 31 percent of your gross monthly income. This would allow you to take advantage of todays low refinance mortgage rates without taking out a new home loan. The list of qualifying rules for HAMP is a bit longer than HARP 2.0 however, heres the lowdown:
The mortgage loan in question must be on your primary residence and you must have purchased your home by December 31st, 2008. Your mortgage balance must be less than $729,750 and youll have to document income and your bills to qualify. Finally, you cannot have been convicted of a felony related to fraud within the last decade. You can find out more about qualifying for HAMP by contacting the HUD help line at 888-995-HOPE .
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Which Government Refinance Program
Do you need help with your home mortgage loan but dont know which Government Refinance Program is right for you? Asking the government for help feels a lot like going to a rich relative with your hat in your hands however, it doesnt have to be that way.
Youre a taxpayer and these programs exist to help YOU so dont hesitate to take advantage of any program Uncle Sam is willing to offer. The problem is making sense of all the different Government Refinance Program acronyms and qualifying rules.
Figuring out your taxes is bad enough these dayspeeling back the layers of bureaucracy surrounding a Government Refinance Program is enough to make you crazy.
How Much Equity Do You Need To Refinance
Loan-to-value is the amount you owe on your home loan compared to the homes current value.
For example, if your home is worth $100,000 and you owe $97,000 on your mortgage, you have a 97 percent loan-to-value ratio.
Incidentally, 97 percent is typically the maximum LTV to qualify for a conventional refinance.
When a homes value drops faster than the owner is paying off their mortgage, their LTV can suddenly spike above that 97 percent benchmark. This makes them ineligible for a refinance under normal rules.
Using the example above, say home values start dropping, and that $100,000 home is suddenly worth $90,000.
The homeowner still owes $97,000 on their mortgage. So their new loan-to-value ratio is 108 percent . They are no longer allowed to refinance, and might be stuck with a mortgage payment they cant afford.
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The Bottom Line: It’s All About Your Finances
Managing loans on a fixed income as a senior citizen can be challenging but it isnt impossible. Make sure you include all of your income when you apply. You can also improve your chances of a refinance by sticking with your current lender and maximizing your appraisal value.
Ready to get started? You can start your refinance or mortgage application online now.
Protect what’s precious
Is Now A Good Time To Refinance
The recent trend of low interest rates suggests it could be a good idea to consider refinancing. Normally when the economy is healthy and unemployment rates are low, interest ratesthe cost of borrowing moneyrise because people feel more confident about borrowing to buy things they want . During uncertain economic times, however, rates usually fall because people are more cautious about taking on debt in those cases, the U.S. government and lenders try to make borrowing more attractive and less expensive, hence the lower interest rates during the pandemic.
The FHFA notes that people who benefit from the new program would save at least $50 per month on their mortgage payment, but they anticipate homeowners saving closer to an average of $100 to $250 a month. These numbers might not seem like much at face value, but an extra $1,000 to $3,000 per year could be the difference between having a solid emergency fund and not having a financial cushion at all.
The benefits of refinancing seem clear, but recent data shows many homeowners who could benefit from refinancing haven’t taken advantage of that option. A study done by Freddie Mac revealed that between February and June of 2020, high-income households saved significantly more on refinancing than those with lower incomes when compared with previously popular refinancing periods.
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Hope For Homeowners Program
Borrowers at risk of losing their homes to foreclosure can take advantage of the HOPE for Homeowners option to save their residences. Along with lacking the ability to make their monthly mortgage payments, homeowners must own no other homes, have had their current mortgage prior to Jan. 1, 2008, have made at least six prior payments, prove that their current monthly payment is more than 31 percent of their gross monthly income, and have not been convicted of fraud in the prior 10 years. Homeowners must note, however, that equity increases over the life of the new mortgage will be shared with both borrower and lender.
References
What Is A Rate And Term Only Refinance
A loan option that may lower your monthly payment or let you pay off your home sooner.
If you want to make your mortgage payments more comfortable and your home value is steady or has increased, you may be able to refinance your mortgage with a rate and term refinance loan. A rate and term only refinance can be either:
- Conventional, which is backed by Fannie Mae or Freddie Mac
- A government program, like a VA Interest Rate Reduction Refinance Loan or a Federal Housing Administration Streamline Refinance
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