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Home Mortgage Refinancing When Home Values Drop
Many homeowners are interested in home mortgage refinancing, but recent decreases in residential market values mean that a large number of mortgage holders owe more than their property is actually worth. With mortgage lenders tightening their lending guidelines in the wake of the mortgage crisis, most won't even consider a home mortgage refinancing unless the loan-to-value ratio is near 20 percent.
Thanks to the federal government's recently-introduced "Making Home Affordable" plan, homeowners who find themselves in this precarious financial position may have a way to participate in the home mortgage refinancing activity that has been popularized due to near-record low mortgage rates. Requirements to participate in the plan include:
- The homeowner has an outstanding mortgage amount that is no greater than 125 percent of the current home value;
- The homeowner has a good credit rating;
- The homeowner is current on their mortgage payments and has no late payments over the past twelve months; and
- The current mortgage is owned or guaranteed by Fannie Mae or Freddie Mac, the federal government's major secondary lenders.
For homeowners who have existing mortgages that are held or backed by Fannie Mae, a home mortgage refinancing transaction can be competed with any participating lender. Homeowners who have a Freddie Mac-affiliated mortgage may only refinance with their existing lender. To find out if an existing mortgage is affiliated with Fannie Mae or Freddie Mac, a mortgage holder can contact their existing lender, or they can contact Fannie Mae (1-800-7FANNIE) or Freddie Mac (1-800-FREDDIE) directly.
The refinance provisions of the Making Home affordable plan were constructed with the intention of helping creditworthy homeowners to obtain a new mortgage with more affordable payments. For mortgage holders who have a fixed-rate mortgage or an adjustable-rate mortgage that has adjusted a few times or more, there is the potential for a substantially lower monthly payment through a home mortgage refinancing transaction via this program. For homeowners who hold a mortgage with an upcoming large balloon payment, this program can provide a financial safety net by restructuring the mortgage so that the balloon payment does not apply or is pushed farther into the future.
If a property owner has a second lien mortgage, the program may still apply if the amount they owe on their first mortgage is 125 percent or less of the home's market value. In order to qualify for the home mortgage refinancing under Making Home Affordable, the holder of the second mortgage must agree to remain in a secondary position.
While some homeowners choose to refinance their home mortgages in order to obtain cash out, this option is not available under the Making Home Affordable program. However, homeowners who have Fannie Mae mortgages may be able to finance their loan closing costs and obtain up to $250 through their home mortgage refinancing if sufficient equity remains. For Freddie Mac mortgage holders, either $5,000 or up to 4 percent of the current principal balance, whichever is lower, may be financed. As with Fannie Mae mortgage holders, Freddie Mac borrowers may obtain cash up to a $250 limit.
To learn more about the Home Affordable Refinance provision of the Making Home Affordable program, talk with approved Fannie Mae and Freddie Mac lenders. These experts can help you to determine if you qualify for this program, and they can also provide you with quotes for various refinancing options.
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