Making Home Affordable Programs Offer Help for Homeowners
Making Home Affordable is a key program in President Obama’s effort to help homeowners avoid foreclosure. There are two programs offered: the Making Home Affordable Refinancing Program helps homeowners refinance into fixed rate loans, while the Home Affordable Modification Program (HAMP) encourages lenders to modify mortgages so homeowners will have lower monthly payments based on their incomes. When a loan refinance or modification is not feasible, a short sale (where the home is sold for less than the amount owed) is encouraged.
Making Home Affordable Refinancing Program
Home Affordable ModificationsYou may not be able to refinance your home if you owe much more than your home is worth, you have a lot of debt, or you are behind on your payments. In those cases, you may want to find out whether you are eligible for loan modification. There are no loan modification fees under this program, and past-due late fees will be waived. Here’s how it works:
If you qualify for a Home Affordable mortgage modification (see details below), your interest rate will be reduced to as low as 2 percent. A lower interest rate means a lower monthly payment, and the goal is to lower your monthly payment to 31 percent of your gross (before-tax) monthly income. Your rate will be fixed for five years, provided you can make your first three monthly payments on time. After five years, your rate starts to rise, but no more than one percentage point each year, until it tops out at the interest rate cap described in your modification agreement. There is a limit on the highest rate you can pay. The interest rate cap will be the market rate for mortgages as published by Freddie Mac when your modification is finalized. That ensures your rate will never be higher than the going mortgage rate at the time of your modification.
If lowering your interest rate to 2 percent does not provide enough relief, your lender may offer you a forty-year loan, which will lower your monthly payment even more. And if that still is not enough, your lender may agree to defer – or even forgive – part of your principal balance or interest. Deferring some of your balance can be risky, though. You could find yourself with a “balloon” payment due in the future if you sell or refinance your home.
You’ll have to meet the following qualifications in order to be considered for a Home Affordable Modification:
Second mortgages or home equity loans can’t be modified under this program. However, the servicer of your first mortgage will receive a financial incentive from the government if it persuades the holder of your second mortgage to forgive the second loan.
Another bonus: Pay your loan on time under this program and you will be eligible for a reduction in your principal of up to $5000 over five years. That will help you build equity in your home in case you do need to sell or refinance it in the future.
How to Apply
To apply for either the refinancing or modification program, you should contact your current mortgage lender or loan “servicer” – the company to which you currently make your payments. Be prepared to give your lender the following information:
Income information: You’ll need your most recent paystub and details about other income you receive. Also have your most recent tax return handy.
Debt: You’ll need the most recent statement for any second mortgage or home equity loan you have, as well as your current balance and monthly payments for other debt such as student loans, credit cards, a car loan, etc.
What if you can’t refinance or modify your loan? You may still be able to avoid foreclosure. The servicer of your loan may receive financial incentives from the government by allowing a “short sale” (a sale in which your home is sold for less than what you owe, with the lender forgiving the difference) or a “deed in lieu of foreclosure” (also commonly known as “giving the keys to the house back to the lender”). And you, the homeowner, may be eligible for as much as $1500 in relocation expenses in these circumstances.
Again, lenders receive financial incentives for participating, and those have been increased in an effort to get them on board. The government says that lenders representing 75 percent of mortgages are on board with the program. A list of participating lenders can be found at www.FinancialStability.gov. If yours is not listed, it’s still important to talk with your lender to find out if they are working with borrowers under this program.
Last updated in August 2009. The information provided above is for reference only. To report updates or corrections, please send us an email.
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