Millions of homeowners having trouble making their mortgage payments are at risk of foreclosure. Some of the traditional methods of avoiding foreclosure include refinancing, loan modification, and forbearance. Each of these options is viable, but as of October 1, 2008, another option is available.
New legislation has gone into place that will that will allow the Federal Housing Administration (FHA) to help homeowners keep their homes and get more affordable mortgages through the Hope for Homeowners program.
How Hope for Homeowners Works
Through the Hope for Homeowners Program, your lender would voluntarily agree to write your mortgage to a maximum of 90% of the appraised value. Your home would be re-appraised by an FHA-appraiser. Then, the government would pay the discounted amount and your mortgage would be refinanced into an FHA-insured 30-year fixed rate mortgage. Your lender would agree that you are not responsible for paying any outstanding debt. Your prepayment penalties and any late fees would also be waived.
Participation would allow you to keep your home and get lower monthly mortgage payments. Additionally, you’ll get 10% equity in your home, even if you had none to begin with.
The interest rate of the new loan will be provided by your lender and will be based on current market rates. The interest rate will be fixed for 30 years and will not adjust.
Not every homeowner will be able to benefit from the Hope for Homeownersprogram. Only those that meet certain qualifications will be able to get a newmortgage under the program. You qualify if:
- You obtained the mortgage on or before January 1, 2008.
- Your mortgage payments must be at least 31% of your income.
- You cannot afford your current loan payments.
- You have not purposely defaulted on your payments.
- You do not have a second home and the mortgage is not on an investment property.
- You did not obtain the loan fraudulently and have not been convicted of fraud within the last 10 years.
You don’t have to be delinquent on your mortgage to qualify. If you are up todate on your payments, but are having trouble making them, you still qualifyfor the program.
You may be able to use the program even if the foreclosure process hasalready begun depending on the foreclosure stage. Your lender will be ableto give you more information.
Homeowners have to pay an upfront 3% mortgage insurance premium. Then, there is an annual 1.5% premium. You can finance your upfront mortgage payment into your new mortgage, as long as the finance mortgage amount is 90% of your current mortgage. Your lender may have to write down your mortgage beyond 10% to allow you to do this.
For the first five years of the loan, no second mortgages can be taken out on the property unless it’s for property maintenance.
You may have to pay closing costs. The lender can finance them into your mortgage.
You must share equity and appreciation with the government. If your house appreciates and you later sell it or refinance the mortgage, you’ll have to share any profit with the government. In the first year, FHA receives 100% of the equity, you won’t receive anything. Each year until the 5th year, the government receives 10% less and you receive 10% more. For example, during year 2, the government receives 90% of any equity or appreciation and you keep 10%. In year 5, the government receives 60% and you keep 40%. If you sell or refinance any time after year 5, you split the equity/appreciation with the government 50-50.
How to Take Advantage of Hope For Homeowners
Contact your current lender or another FHA-approved lender in your area for information on applying for the program.
Contact an FHA-approved housing counseling agency to help you decide if Hope for Homeowners is the right option for you.
You can locate an FHA-approved lender or housing counseling agency by visiting the HUD website at www.hud.gov.
The Hope for Homeowners program will last from October 1, 2008 through September 30, 2011.