This is a question that our team has been asked on a daily basis. Typically, you could not refinance a home that is underwater because it simply wasn’t allowed. Today, there are some programs in place to help underwater homeowners refinance their loan and take advantage of today’s low interest rates. Such programs include the Home Affordable Refinance Program (HARP), FHA Streamline Refinance and the VA Streamline Refinance (aka IRRRL or Interest Rates Reduction Refinance Loan).
A little background:
The Obama Administration was dealt a pretty crappy hand 4 years ago when they took over the Executive Branch – an economy on the brink of failure, banks and automotive industries about to collapse and a national housing market in a downward spiral.
We all know about the bailouts for the auto and bank industries. The government “gave” hundreds of billions of dollars to the banks and auto manufacturers to save them from failing. Well, to help save the main street and the average homeowner, the White House instituted a few programs that allowed homeowners underwater on their mortgage to refinance.
Home Affordable Refinance Program
The Home Affordable Refinance Program or HARP allows for underwater homeowners whose loans are backed by either Fannie Mae or Freddie Mac to refinance. There have been 2 versions of the HARP Loans program. The current one (number 2) is much more accommodating to homeowners than the first one. The major difference is that in this version, the LTV Cap has been removed. Previously, you could only be underwater by 125% to be eligible for the program. Now, you can have an unlimited LTV cap and refinance. You also must be current on your last 6 months mortgage payments and can have missed only 1 in the last 12 months. You must have also purchased your home before June 1, 2009.
FHA Streamline Refinance
The FHA Streamline Refinance is a program dedicated to homeowners who have a loan insured by the FHA. In order to refinance, you must be current on your last 12 months of payments, your loan must be seasoned (must’ve opened the loan 6 months prior), and the refinance must lower your monthly payment. You cannot get cash-out on a FHA Streamline Refinance. You also don’t need to re-qualify for a Streamline Refinance.
VA Streamline Refinance (IRRRL)
Like a FHA Streamline Refinance, the VA Streamline Refinance program is aimed at helping those with a VA loan refinance if they are underwater on their loan. Other benefits are that you can lower your current interest rate, or convert from an ARM to a fixed rate loan. The VA does not require an appraisal, credit information, or underwriting, but your VA approved lender may require these.
For more, visit these helpful links:
VA Streamline and FHA Streamline: http://portal.hud.gov/hudportal/HUD