The following post was written by guest blogger Jonah Trenton. It may interest those of you who want to refinance your mortgage.
Refinancing Underwater Mortgages in DC
The criteria for refinancing a mortgage through a traditional lender typically require some degree of equity in the property. At the very least, homeowners should not owe more than the home's value, a situation known as being underwater, in order to qualify for the best refinance rates. After the housing market crashed in 2008-09, many homeowners found themselves struggling to refinance their mortgages in light of sinking home values and disappearing equity.
As of mid-2011, an estimated 22.5 percent of homeowners nationwide were underwater in their mortgages. In the Washington, DC area, homeowners fair slightly better, with an estimated 14 percent underwater, compared to more than 23 percent in Virginia and Maryland. While the DC area is performing better that surrounding areas in terms of real estate values, this does not sooth the struggling homeowner whose home has lost significant value. There is, however, hope for refinancing, even for borrowers underwater with their current mortgage.
Home Affordable Refinance Program
The Home Affordable Refinance Program, better known as HARP, was designed to help homeowners refinance their homes with stable, affordable mortgage terms. A joint effort by the Department of the Treasury and HUD, the HARP concept was designed to address the problem of lost home value compared to mortgage balance owed. Certain criteria are required in order for a borrower to qualify for a HARP loan.
Primarily, borrowers must be current on all mortgage payments, with no more than one late payment in the previous 12 months. Additionally, the loan must be owned by Freddie Mac or Fannie Mae. Initially, the ratio of loan to home value had to meet qualifying criteria, but those standards were changed in 2011. Under both the original HARP guidelines and current guidelines, condominiums financed through Freddie Mac or Fannie Mae are also eligible for refinancing assistance.
Individual lenders are responsible for processing and approving applications. Not all mortgage servicing companies make HARP available, as involvement with Freddie Mac or Fannie Mae is required. If available through a lender, refinancing under HARP does require the origination of a new loan, with all the subsequent fees and underwriting requirements typical of a refinance. The program does not guarantee the best refinance rates, but instead strives to help homeowners refinance into a more affordable payment and interest rate.
Conforming Mortgage Limits and Hardest Hit Areas
For borrowers looking to refinance an underwater mortgage through HARP, there are conforming loan limits to consider. Fannie Mae, for example, has two conforming limits, depending on the home's location. For most areas, the conforming loan limit is $417,000. For high-cost areas, such as San Francisco and Washington, DC, regulations allow for the use of a different conforming loan limit specifically for high-cost areas.
In the DC area, the conforming loan limit for a first mortgage is $625,500. However, if a homeowner or condominium owner has experienced unemployment since October, 2010 and has or is receiving unemployment benefits, there may be additional programs to help homeowners prevent foreclosure and prepare for refinancing. The Hardest Hit Fund through the District of Columbia Housing Finance Agency is a federally funded program designed to help homeowners prevent foreclosure through mortgage payment assistance. The program has strict qualifying criteria, but offers a forgivable loan to help maintain payments or catch up delinquent payments.
FHA Streamline Refinance Program
Whether a borrower qualifies for HARP or not, there are options available for refinancing, even when the value of the home has dropped. For example, borrowers with The Federal Housing Administration (FHA) mortgages may be eligible for streamline refinancing. Like HARP, the FHA Streamline Refinance program may not offer the best refinance rates, depending on the borrower's credit history and income, but the program does help homeowners who are under water with their mortgages.
Various criteria and terms are available through FHA lenders provided the mortgage is current, the loan is insured through FHA, the refinance lowers monthly payments and no equity is cashed out. As with HARP loans, loans eligible for FHA streamline refinancing vary, depending on specific lender terms. Some borrowers may qualify for no-cost refinancing with a higher interest rate. Others may have their closing costs rolled into the new loan, to take advantage of lower rates.
Individual Lender Refinance Programs
For homeowners whose loans are not owned by Freddie Mac, Fannie Mae or FHA, many individual lenders offer programs to help refinance underwater mortgages. No matter what lender owns the mortgage note, borrowers should start the refinance process by first asking their current lender what programs the lender offers and for which programs the borrower qualifies. From there, the borrower can pursue other options to ensure the best refinance rates and terms for their situation.