While the housing market has certainly improved over the past 18 months, there are still many Americans who are facing problems with their mortgages. For example, as of last August there were 12.2 million homeowners who still owe more than their homes are currently worth or are “underwater.” That’s one of the three toughest problems facing homeowners today. The other three are people who simply can’t make yheir payments, people who have fallen behind in their payments and those facing foreclosure. Fortunately, there are solutions available to all three of these problems.
“Help, I’m underwater”
If you have negative equity in your home, meaning that you’re underwater, there is help available through the Home Affordable Refinancing Program or HARP. However, to be eligible your mortgage must be guaranteed or owned by Fannie Mae or Freddie Mac and has to have been made before May 31, 2009. If you do qualify for the plan, which is now called HARP 2.0, you may be able to get a more affordable mortgage regardless of your loan-to-value ratio. This means you could be underwater by as much as 30% and still get a new mortgage at a more affordable interest rate.
There are two really good reasons to get a new mortgage under HARP 2.0. The first is that it would lower your monthly payments and probably substantially. Supposing that you had a 30-year fixed rate mortgage for $165,000 at 7%. In this case your payment would probably be around $1097. A HARP refinance at 3.5% would drop your monthly payment to about $740 – not including taxes and insurance. This would save you $357 a month or more than $4000 a year. The second reason to consider a HARP loan is how much you would save over the life of the loan. As an example of this, if you were to get a new mortgage that had an interest rate of just one point less on a 30-year fixed rate $100,000 loan, you would save about $22,500 over its life.
Many banks have sent letters to their mortgage holders telling them they qualify for HARP 2.0. But if you haven’t received one you could still be eligible. The one caveat is that you must have kept current with your mortgage payments for the past six months. If you have kept current but haven’t received a letter offering a new loan, you will need to contact your mortgage holder and ask if it’s participating in HARP 2.0. If not, try a different bank or mortgage lender.
“Help, I’m having a problem making my payments”
If you’re having a problem making your payments, there is actually such a thing as a mortgage grant. It’s not likely that you can get one directly from the government because it rarely gives grant money directly to people to help make their mortgage payments. Instead, it gives it to a distributing organization. These mortgage payment grants typically come from local and state agencies and from non-organizations that receive federal money. You can get information on the availability of a mortgage grant program in your area through any housing counseling agency approved by the US Department of Housing and Urban Development.
There is also the federal grants.gov website is a portal that will get you to information on almost any federal grant available. In addition, most state housing finance agencies and public housing authorities have information on mortgage payment grants. There are also nonprofit organizations such as Money Management International that offer mortgage payment grants.
You’ll need to do your research because every grant program has its own qualification and application criteria. Also, if you make too much money you generally won’t be eligible for a mortgage payment grant or other assistance. However, there are some mortgage payment grant programs like the PHASES program, which are not strictly limited to income-qualified applicants.
If your three to 24 payments behind on your mortgage and it’s either owned or guaranteed by Fannie Mae or Freddie Mac, there is a program designed for you. It’s called the Streamlined Modification Initiative. You must have a mortgage that’s a first lien (first mortgage) that you’ve had for at least a year and your long-to-value ratio must be equal to 80% or more.
One of the best things about the Streamlined Modification Initiative is it that doesn’t require you to file any paperwork as does the HARP 2.0 program. Instead, you should receive an offer from mortgage lenders. If you receive one of these letters and choose to refinance, you will make your new payments on a three-month trial basis. Then, if you did make those payments on time your modification will become permanent.
The way this program works is that either the term of your loan will be extended or your interest rates will be reduced. If the termof your mortgage is extended it will probably be for 30 or 40 years.
The one downside of the Streamlined Modification Initiative is that it does nothing to reduce your principal balance. For example, if you owed $90,000 before your Modification, you will still owe $90,000. But the change made in your mortgage could still mean big savings especially if you have a high-interest loan that you’ve been unable to refinance to a very low interest rate. If you had a $200,000, 30-year fixed-rate mortgage with a 5.5% interest and you were able to get it modified to a 40-year term at a 4% interest rate, your monthly payments would go from around $1135 to $835, which would be a difference of $300. We don’t know about you but we would certainly like to have an extra $300 a month in our pocket.
“Help, I’m facing foreclosure”
If you fall for behind in your payments and your lender is threatening foreclosure, don’t despair. There are solutions for even this. The important thing is that if you receive a letter from your mortgage holder threatening foreclosure, be sure to contact the company immediately. Explain why you’re having a problem meeting your payments. Be prepared to provide information about your monthly income and expenses. If you are able to convince the mortgage company that your problem is a short-term one and that you have a plan for handling it, your lender may be more willing to work with you.
A second alternative if you have an FHA-insured loan is to contact and HUD – approved housing counseling agency. This can be a valuable resource as it will have information on programs and services offered by the US government and by community and private organizations that might be able to help you.
It’s also possible that you could get what’s known as a Special Forbearance. If you have legitimate reasons for having missed your mortgage payments, your mortgage holder might be willing to arrange a repayment plan based on your financial situation. You might even be offered a temporary reduction or suspension of your mortgage payments.
As an alternative to this, you might be able to get a mortgage modification. This is similar to the Streamlined Modification Initiative in that you would refinance your debt or extend the length of your mortgage loan. If you can get your monthly payments reduced to a more affordable level, this can help you catch up. If you can show your mortgage holder that you’ve recovered from your problems and can afford the new payment amount, you might qualify for a refinance or an extension. Here’s a short video that explains more about this program and how you would qualify.
A pre-foreclosure sale is a third alternative. This is where you avoid foreclosure by selling your house for less than the amount required to pay it off. You must be at least two months behind to qualify for a pre-foreclosure sale and an appraisal of your home’s value will need to show that it’s worth less than the amount you all on your loan.
Finally, you can voluntarily “give back” the house to your lender. This won’t save your home but it’s not as damaging to your credit rating as would be foreclosure. This is called deed-in-Lou a foreclosure. To qualify for it you must:
Be in default and not qualify for any of the other options
Have tried to sell the house before foreclosure and were unsuccessful`
Do not have another FHA mortgage in default