With low interest rates, refinancing has become a very attractive option for many home owners who could save thousands of dollars on their mortgage interest repayments.
Unfortunately, the savings from refinancing to a lower interest rate are out of grasps for millions of Americans because they do not qualify. While the more stringent criteria has become prudent in preventing future loans being made to irresponsible borrowers, the banking industry has gone to the opposite extreme by making refinancing available to so very few.
However, Obama’s new $75B ‘Homeowner Affordability & Stability Plan” may provide the refinancing relief many responsible home owners are looking for. Here are the Main provisions for refinancing under the plan:
1. Have a conforming loan backed by Fannie Mae or Freddie Mac. Approximately 60% of single-family “conforming” loans are backed by these Government controlled mortgage giants. These are the companies that buy the loans from your bank/servicer and then sell them to Wall Street. A conforming loan is one under $417,000 in many areas — or up to $729,500 in certain high-cost areas like the San Francisco Bay Area. Most home owners will have no idea if their loan is “backed” by Fannie or Freddie, but your lender does. So call them and then ask about qualifying under Obama’s housing plan.
2. Your Loan to Value ratio (LTV) can now be as high as 105%. Under the Obama housing plan, the LTV has been raised to 105%, which means you qualify even if you owe between 80-105% of your mortgage. However it you are severely “underwater” and owe more than 105% of their home’s value you will NOT qualify and may have to wait for mortgage relief via other lender driven provisions in the housing plan.
3. Allows borrowers with less than 20% equity in their homes to refinance to the current prevailing rate. However they must meet the above LTV criteria.
4. Timeframe Eligibility. Only Loans that originated on or before January 1, 2009 are eligible for this program. The modification program will be in effect until the end of 2012, but loans can only be adjusted once.
5. Bonus Payments. Borrowers who keep up with their new payments will receive up to $1,000 a year in principal reduction, for up to five years.
6. Modification Threshold. Servicers will follow a specified sequence of steps in order to reduce the monthly payment (with government subsidies) to no more than 31% of gross monthly income (DTI).
If you think you will qualify you should start getting ready to start the refinancing process as soon as possible because there will be a mad rush of applicants. Borrowers should contact their loan servicers to see whether they are eligible for assistance. There is additional information for borrowers to determine their eligibility at http://www.hud.com
To prepare, start gathering the information that you will need to provide to your lender which includes:
- Documentation for income sources, two most recent pay stubs, and most recent tax return, and a signed affidavit of financial hardship.
- Information about any 2nd mortgage on the house.
- Payments on each of your credit cards if you are carrying balances from month to month
- Payments on other loans such as student loans and car loans
It’s that time of year again — one less hour of sleep. Don’t forget to move your clocks forward 1 hour Saturday night. While you are at it, change the batteries in your smoke detectors.
