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The Guide to Getting a Mortgage After Foreclosure

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mortgage after foreclosure

Introduction

If you’re among the one million homeowners who lost a home to foreclosure between 2007 and 2008, you may be starting to think about re-entering the housing market. If you went through a foreclosure during the earlier part of the financial crisis, it may no longer be on your credit report, and you may be qualified to try and become a homebuyer again.

If you lost your home more recently, along with five million other Americans between 2007 and 2014, it’s never too early to start preparing yourself for the qualification process. The three major credit reporting firms, Equifax, Experian, and TransUnion, begin reporting your foreclosure once a lender says you have missed your first payment, and you will have to wait seven years before it is removed. However, there are a variety of different mortgage options available, with varying eligibility requirements, and some have shorter waiting periods that you may be able to take advantage of if you qualify.

Here’s everything you need to know about qualifying for a mortgage after foreclosure.

What Will it Take To Get Approved?

Federal Housing Administration (FHA) Loans

Insured by the federal government, Federal Housing Administration (FHA) backed loans are often one of the first options foreclosed-upon borrowers turn to. Although bigger banks like JP Morgan Chase and Bank of America have restricted FHA loans by requiring very high credit scores, smaller banks have been more willing to lend to foreclosed-upon borrowers.

If you’ve gone through a full foreclosure and repaired your credit, you may be eligible for an FHA loan in just three years. Some borrowers have even been approved in as little as one year, although this is rare. According to Moody’s Analytics, about 1.2 million foreclosed-upon borrowers were approved for FHA loans after three years.

FHA loan programs vary from state to state, but they share common eligibility qualifications—minimum credit scores of 500-580 and a debt-to-income ratio of less than 43%. Plus, you’re required to make a minimum 3.5% down payment.

Although FHA loans require significantly lower down payments and look for lower credit scores than conventional mortgages, most loans are insured by mortgage insurance premiums, which will increase your monthly mortgage payment. Mortgage insurance premiums for 30-year mortgages cost 0.85% of the loan’s value, which adds up quickly for more expensive homes. And some homeowners are required to pay mortgage insurance premiums for the life of the loan. That’s why it’s important to carefully assess the full cost of your FHA mortgage.

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FHA’s Back to Work – Extenuating Circumstances Mortgage Loan Program

Normally, you have to wait 3 years after foreclosure to be approved for an FHA fixed-rate mortgage. However, FHA’s Back to Work Program may help you qualify for a new mortgage in as little as one year after bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. The program, which has been extended through September 30, 2016, offers families affected by the housing crisis and recession a second chance at homeownership.

How can you qualify? FHA will consider your eligibility if you’ve had a foreclosure but now meet the following criteria:

  1. You meet FHA loan requirements.
  2. You can document your foreclosure resulted from a financial hardship beyond your control.
  3. You have re-established a responsible credit history.
  4. You have completed HUD-approved housing counseling.

To begin the process, you will need to take a “Pre-Purchase Counseling” course with a HUD-approved housing counseling agency 30 days prior to filling out an application. You will also need to meet FHA’s loan requirements with minimum credit scores of 500-580 and a debt-to-income ratio of less than 43%.

Once a lender has determined you meet FHA’s requirements, you will be able to apply for a loan under the Back to Work program. You will need to explain how your financial hardship was caused by factors beyond your control — a reduction in income, job loss, or a combination of the two. These events need to have caused your household income to drop by 20% or more for a period of at least six months. Detailed documentation, like employment verification, W-2s, and tax returns, will be required to prove these events in order to qualify. Divorce, previous loan modifications, or the inability to rent an income property won’t count.

To re-establish a responsible credit history, FHA requires that you have 12 months of on-time rent payments. They also require that you haven’t been more than 30 days late on more than one non-housing loan payment. They also watch for collections accounts and court records reporting (with exceptions for medical bills and identity theft).

Fannie Mae Loans

Fannie Mae-backed loans have longer waiting periods for foreclosed-upon borrowers than FHA. The standard waiting period is seven years. However, extenuating circumstances may qualify you for three years.

Fannie Mae defines extenuating circumstances as “nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.” You will need to be prepared to provide your loan officer with an “extenuating circumstances letter” explaining why you had no reasonable alternatives other than defaulting on your financial obligations.

Fannie Mae requires a minimum credit score of 620 for fixed rate mortgages and 640 for adjustable rate mortgages. And they won’t accept a debt-to-income ratio of more than 43%. Fannie Mae loans require a 20% down payment.

Freddie Mac Loans

Similar to Fannie Mae loans, Freddie Mac also has a seven-year standard waiting period. Their waiting period for borrowers with extenuating circumstances is also three years.

In order to qualify as a borrower with extenuating circumstances, Freddie Mac requires your mortgage file to contain:
  • A written statement about the cause of your financial difficulties to explain the outside factors beyond your control.
  • Third-party documentation confirming the events detailed in your statement were an isolated occurrence, significantly reduced your income and/or increased expenses, and rendered you unable to repay your mortgage.
  • Evidence on your credit report and other documentation in the mortgage file of the length of time since completion of your foreclosure to the date of application and of completion the recovery time period requirements.

Freddie Mac also requires a minimum credit score of 620. They won’t lend if your debt-to-income ratio is above 43%. Freddie Mac loans require a 20% down payment.

Veterans Affairs (VA) Loans

Did you know 1 in 3 home-buying Veterans doesn’t realize they have a home-buying benefit? Depending on your length of service, duty status, and character of service, you may be eligible for a Veterans Affairs (VA) home loan after foreclosure. VA loans, guaranteed by the Department of Veterans Affairs, allow veterans and active military to bounce back more quickly after a foreclosure. The waiting period to be approved for a VA loan after foreclosure is only two years.

Once you have established you’re eligible, you will need a Certificate of Eligibility (COE) for your lender. This certificate will verify your eligibility for a VA-backed loan.

Veterans Affairs doesn’t limit the amount you can borrow. However, there is a limit to how much liability they are willing to assume, and this will affect the amount of money you can be approved for. Veterans Affairs’ liability is limited to the amount a qualified Veteran with full entitlement can borrow without making a down payment. Remember, these loan limits will vary by county, depending on the value of the home you are interested in.

If your income and credit qualifies, lenders will generally loan up to four times your entitlement without a down payment. Basic entitlements are usually $36,000 for eligible veterans. Although VA loans are more lenient on credit history than conventional loans, lenders generally look for a credit score of at least 620.

Non-Qualified (non-QM) Loans

For foreclosed-upon borrowers who don’t fit the standards for mortgages from Fannie Mae or Freddie Mac lenders, another product has emerged — non-qualified (non-QM) loans. These are a newer type of agency-alternative loan backed by hedge funds and private equity firms. The layers of risk associated with these loans are often secured by larger down payments or higher interest rates. The lender’s primary concern is your ability to repay, and many don’t require a waiting period for foreclosed-upon borrowers.

Ability-to-repay is an important aspect of qualifying for a non-QM loan, so most lenders will require income documentation. Depending on how much time has passed since your foreclosure, most loans require at least 20% down and adequate assets to cover reserves. You’ll find these interest rates are significantly higher than market rates.

A&D Mortgage, a private lender based in Hollywood, FL, offers non-QM products to foreclosed-upon buyers in their home state. They advertise that if there hasn’t been a judgement, you can apply for a mortgage as soon as you have settled your foreclosure.

Their loan periods are typically 24-60 months, with 7.999-11% adjustable interest rates. Down payments start from 30% and your debt-to-income ratio needs to be below 50%. Additionally, you should expect to pay standard origination and closing fees. A&D Mortgage is looking for credit scores of at least 500, and they will accept a loan-to-value ratio of up to 70%. The entire process takes a minimum of 5-7 business days once they have received your paperwork.

Another private non-QM lender, Angel Oak Home Loans, based in Atlanta, GA has a program specifically dedicated to serving foreclosed-upon borrowers with bad credit. Their program, Home$ense, was created specifically for homebuyers who were caught in the recession and mortgage crisis.

Home$ense allows you to begin the application process immediately after your foreclosure has settled. They offer 30-year fixed mortgages with interest rates of 5.5 percent to up to 9 percent, and they require a minimum 20 percent down payment.

These loans allow a loan-to-value ratio of up to 80% and don’t count late mortgage payments from the past 12 months against you. The average credit score of their borrowers is 670. Their loans are available for single-family residences, and they will approve up to $1 million for your loan.

Should You Wait to Qualify for an FHA Loan?

It’s easy to get caught in the excitement of purchasing a home, especially after a foreclosure. However, it may be smarter to exercise patience and wait 3 years to qualify for an FHA loan. This example illustrates why:
Non-QM
Credit score620-639
Home price$200,000
Down payment$40,000 (20%)
Loan amount$160,000
Rate typefixed
Loan term30 years
Interest rates5.5 to 9%
Full cost of mortgage at 5.5%$327,046
Full cost of mortgage at 7%$383,214
Full cost of mortgage at 9%$463,463
FHA Loan
Credit score620-639
Home price$200,000
Down payment$40,000 (20%)
Loan amount$160,000
Rate typefixed
Loan term30 years
Interest rates3.375% to 4.125%
Full cost of mortgage at 3.375%$254,647
Full cost of mortgage at 4.125%$279,158

Even without the full recovery of your credit score, it’s easy to see the differences in cost between these two types of loans. In addition to a significantly lower monthly payment, an FHA loan will save you a lot of money over the lifetime of the loan.

Comparing the Costs of Mortgages After Foreclosure

How much will a foreclosure affect your credit score? It depends on what credit score you started with. According to FICO, if your credit score is 780, a foreclosure will drop your score by 120-140 points. And if your credit score is 680, a foreclosure ding your score by at least 85-65 points. The higher your score, the greater of an impact your foreclosure will have. The lower your score, the less likely a lender will approve your loan, and if you are approved, you will probably be stuck paying higher interest rates.

Assuming your score has dropped to 620, here are a few examples of how much your mortgage after foreclosure may cost. These examples are for mortgages in Tennessee:

FHA Loan
Credit score620-639
Home price$200,000
Down payment$40,000 (20%)
Loan amount$160,000
Rate typefixed
Loan term30 years
Interest rates3.375 to 4.125%
Total cost for interest at 3.375%$94,647
Total cost for interest at 4.125%$119,158
VA Loan
Credit score620-639
Home price$200,000
Down payment$40,000 (20%)
Loan amount$160,000
Rate typefixed
Loan term30 years
Interest rates3.49 to 4.25%
Total cost for interest at 3.49%$98,328
Total cost for interest at 4.25%$123,357
Conventional Loan
Credit score620-639
Home price$200,000
Down payment$40,000 (20%)
Loan amount$160,000
Rate typefixed
Loan term30 years
Interest rates3.75 to 4.875%
Total cost for interest at 3.75%$106,755
Total cost for interest at 4.875%$144,824

Remember, credit score, home price, and down payment will all affect your interest rates. It’s also important to ask about points, mortgage insurance, and closing costs, which are not included in these examples.

Deficiency Judgements: What You Need To Know

If you’ve had a foreclosure, you need to be aware of the risks associated with deficiency judgements. Many lenders will forgive deficiency through a short sale before foreclosure. But be aware that lenders have the ability to file motions for old foreclosure lawsuits and hire debt collectors to go after your remaining debt, court fees, and attorney’s fees, plus any interest that has accumulated.

Fannie Mae and Freddie Mac lenders are among the ones doing this, and they are specifically targeting “strategic defaulters.” In 2011, Fannie Mae and Freddie Mac went after 12 percent of the 298,327 homes they foreclosed on for deficiency judgements. Fannie Mae has hired debt collectors in 38 states and Freddie Mac has taken foreclosed-upon homeowners to court in 17 states.

In a press release, Fannie Mae explained how they have instructed lenders to monitor delinquent loans facing foreclosure and make recommendations for cases that may warrant deficiency judgments. Additionally, they pointed out that borrowers who worked with lenders may be considered for foreclosure alternatives like a loan modification, a short sale, or a deed-in-lieu of foreclosure.

How does a deficiency judgement work? If your home had a $250,000 mortgage, the value may have decreased to only $150,000 after the financial crisis. If you foreclosed at that point, and your lender sold your home at its current value, the $100,000 difference would be the deficiency balance. A Washington Post investigation uncovered a story of a Rockville, MD family who lost their home to foreclosure in 2008. Over three years after their foreclosure, they were taken to court by lenders to collect their deficiency balance of $115,000, which included three years of interest.

Although deficiency judgements are not a common problem right now, they could come back to haunt you once you’ve recovered from a foreclosure, secured a better job, and have started rebuilding savings. Deficiency judgements are still allowed in 40 out of 50 states, and the statutes of limitation range from 30 days to 20 years. You won’t know it’s coming until you receive a court notice, and many times your debt will no longer be with the original lender. Interest may become one of the largest expenses, especially if your debt is old. And once there is a judgement, you will be stuck paying it off.

In many cases, filing for Chapter 7 bankruptcy may be the only way out. And that option may not be available if you earn more than your state’s median income by family size. If that’s the case, Chapter 11 or Chapter 13 may be your only other options.

Should You Wait To Apply?

When you’re ready to own another home, you may be tempted to try and re-enter the housing market as quickly as possible. However, rushing into the home-buying process may not be the right choice.

First, you should figure out when the negative mark on your credit report is due to be dropped. Start by checking your credit report from each of the three credit-reporting firms, Equifax, Experian and TransUnion, through annualcreditreport.com. It’s free every 12 months, and these reports will show you exactly when your foreclosure was recorded.

When it comes to applying for a new mortgage, timing is key. If there are only a few months left before the foreclosure is removed from your credit report, you may benefit from waiting until the black mark is gone. When lenders check your credit reports during the application process, they won’t see your foreclosure.

However, if you still have another year to go, and you want a mortgage, you may not benefit from waiting. Interest rates are on the rise, and there’s no guarantee they won’t be higher than what you are able to secure earlier — even with a blemished credit report.

Keep in mind some applications may ask questions about previous foreclosures, so you may be required to disclose this information either way. And the information about your foreclosure may make a lender think twice about your eligibility.

So does it make more sense to wait? Here are a couple of examples comparing the costs for FHA loans:

Example #1
Credit score620-639
Home price$200,000
Down payment$40,000 (20%)
Loan amount$160,000
Rate typefixed
Loan term30 years
Interest rates3.375 to 4.125%
Total cost for interest at 3.375%$94,647
Total cost for interest at 4.125%$119,158

This examples assumes your score has dropped to 620, you can afford a 20% down payment, and you’re looking for a 30-year fixed rate FHA loan in Tennessee. You have passed the three-year waiting period, but a foreclosure is still on your credit report.

Example #2
Credit score720-739
Home price$200,000
Down payment$40,000 (20%)
Loan amount$160,000
Rate typefixed
Loan term30 years
Interest rates3.25 to 4.00%
Total cost for interest at 3.25%$90,679
Total cost for interest at 4.00%$114,991

This example assumes your score increased to 720 after your foreclosure was removed from your credit report. All other details are the same as the previous example. As you can see, the 100-point difference in credit score represents roughly $4,000 in savings over the lifetime of the loan.

Because interest rates are controlled by market forces outside of your lender’s control, you may want to think about how much rates may increase on their own within the timeframe of when you’re looking to qualify for a mortgage. We recommend using the Consumer Financial Protection Bureau’s interest rate tool as you are gathering data to make your decision.

General Tips On Being Approved For a Mortgage After Foreclosure

Regardless of which type of mortgage you decide to pursue, and the mandatory waiting period associated with it, cleaning up your finances will help the entire process go more smoothly:
Pay down all credit card debt

Paying your credit card debt off completely is one of the fastest ways to improve your credit scores. This type of debt compared to your spending limits accounts for 30% of your FICO scores. Once you’ve paid off your credit cards, you should see the change reflected in your credit score within a month.

Don’t apply for other loans

Resist the temptation of increasing your debt burden before applying for additional financing. This includes car loans, furniture loans, or appliance financing. Your debt-to-income ratio is one of the most important factors lenders look for when trying to determine your eligibility for a mortgage.

Avoid other blemishes on your credit report.

After your foreclosure, prioritize paying all of your bills or loan payments on time. You won’t want to begin the seven-year period of waiting for negative events to be removed again.

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Conclusion

Losing a home to foreclosure can be a devastating experience, but you’re not alone. 7.3 million “boomerang” buyers who have lost a home over the past decade are preparing themselves to re-enter the housing market over the next several years. In fact, 25% of these foreclosed-upon buyers already have their foreclosure removed from their credit report. It’s important to take your time exploring all available options, selecting a program that best fits your current financial situation, and securing the best possible terms.

Our guide was designed to offer you a comprehensive overview of the options that are currently available, but it’s always a great idea to conduct a bit of your own research. With the large volume of borrowers seeking to re-enter the market in the next few years, additional options may continue to emerge.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Kate Dore is a writer at MagnifyMoney. You can email Kate at kate@magnifymoney.com

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How to Host a Successful Garage Sale

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Whether you’re prepping for a move or finally cleaning out the basement, decluttering your home can bring you peace of mind — and extra cash. Hosting a garage sale is a great way to get rid of old or unused items. Here are a few tips to help you make your sale as profitable as possible.

When is the right time for a garage sale?

Garage sales go by many names — yard sale, moving sale, tag sale, estate sale or rummage sale — but some portion of the event will likely take place outside. If you’re hosting your sale to get rid of stuff before a move, you’ll likely be stuck to a certain date, but if you have some flexibility, consider mild seasons like spring or fall. No one likes rummaging through old items in the blazing August sun, even for good deals.

How to prepare for a yard sale

While the concept of a garage sale is fairly simple, it’s easy to mess up. Many people who host a sale see little success — often because they failed to prepare. Sure, you can just set your unwanted items out on the lawn and have passersby stop and quickly sift through everything. But when you put in a little work ahead of time, the success of your sale is much greater.

“The more preparation that you can do, the more you’ll probably make,” said Ava Seavey, New York-based garage sale expert and author of Ava’s Guide to Garage Sale Gold.

Schedule wisely. First, you’ll want to pick a day for your sale, ideally a Friday or Saturday.  Then you’ll want to take the time to sort through your belongings and carefully select the items you want to sell, choosing items that people will actually find appealing and will want to buy.

Be strategic about prices. Seavey advised that costume jewelry, furniture and collectibles have the potential to make sellers the most money. However, how you price the items is key to ensuring you will earn what these items are worth.

“A good percentage of people who go to garage sales will pay what you have written down,” Seavey said. While some people will negotiate, if your stuff is priced correctly, people will pay it, she said.

Get the word out. You will also want to focus on advertising your sale in your local newspaper and online using garage sale-specific websites and social media channels. Go ahead and describe the types of items you’ll have for sale to attract the right customers.

Be prepared. You’ll want to make sure you have all the supplies you need, including:

  1. Tables
  2. Tablecloths
  3. Pricing labels
  4. Money apron (to hold cash)
  5. Bags
  6. Paper/newspaper (to wrap fragile items)
  7. Signs (to advertise the sale throughout the neighborhood)
  8. Notebook/ledger (to keep track of items sold and money collected)

This may seem like a lot to do in order to sell a few necklaces, purses or electronics. But this preparation can make your sale more appealing and profitable. If having your own sale sounds too time consuming to prepare, you and a friend, family member or neighbor could have the sale together.

What to expect during your garage sale

On the day of the garage sale, you’ll get a variety of customers depending on what you have available for purchase. If you have advertised correctly and have the right things for sale, you could draw in a large crowd.

“I would have plenty of things for everyone. Those are the best sales, when you have a variety,” Seavey said.

Try to keep the sale going from the morning to the late afternoon. Having a sale that lasts a few hours may hinder your ability to make money because you are limiting how many people will be able to come. If your sale starts in the morning and goes until later in afternoon, you can maximize the profits from the sale because those who could not make it during the morning hours can shop in the afternoon before the sale ends.

“There is no magic time to end, but you will do most of your selling in the morning,” Seavey said. “I like to go as long as I can.”

With the money you make from your sale, you can add to or start an emergency fund, pay past-due bills, or even purchase updated items for your new home if you are moving.

What to do after the yard sale

A successful yard sale will leave a lot of money in your pocket and very few unsold items on your lawn. Consider storing your newly acquired cash in an online savings account that earns you interest. If you’re stuck with leftover items, you can always hold another sale, or you can donate them to a charity, church or secondhand store. You won’t make any money when you go this route, but there are benefits to donating.

“You have unloaded everything, you’ve made some money and you have a tax write-off,” Seavey said. “It’s a win-win-win for everybody.”

A garage sale can be the answer when you want to rid yourself of unwanted items — and even make a little money in the process.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kristina Byas
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Kristina Byas is a writer at MagnifyMoney. You can email Kristina here

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What the End of HARP Means for Your Mortgage

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Home values have been on the mend since the financial meltdown of just a decade ago. This has been good news for people who have struggled with negative equity in their homes, meaning the value is lower than the amount they owe on their mortgage.

The percentage of “underwater” homes has dropped significantly, decreasing 16% year over year at the end of 2018 to comprise 4.1% of all mortgaged properties, real estate research firm CoreLogic found. But that means there are still homeowners who need assistance with recovering their equity.A popular government-sponsored refinancing program aimed at helping these homeowners has recently ended, and people looking for help getting above water may not be aware of the other options they have.

In this article, we highlight and explain what the closing of HARP means for homeowners and several available alternatives.

What is HARP?

The Home Affordable Refinance Program, known as HARP for short, is an initiative that helped underwater homeowners refinance their mortgage. The program was introduced in 2009 after the housing crisis.

HARP allowed eligible homeowners to refinance their mortgages to lower their mortgage interest rate or switch from an adjustable-rate to a fixed-rate mortgage even if they were underwater. Typically, lenders will not allow a borrower to refinance if the house is worth less than what is owed.

In order to qualify, homeowners needed to meet the following requirements:

  • No late mortgage payments over the last six months that were 30-plus days behind, and no more than one late payment over the last year.
  • The mortgage you’re attempting to refinance must be for your primary residence, a one-unit second home or a one- to four-unit investment property.
  • Your mortgage must be owned by Fannie Mae or Freddie Mac.
  • Your mortgage was originated on or before May 31, 2009.
  • Your loan-to-value ratio is more than 80%.

The program had been extended a few times, but the last HARP deadline was Dec. 31, 2018.

Fannie and Freddie’s HARP replacements

Government-sponsored enterprises Fannie Mae and Freddie Mac have refinance products in place that are meant to replace HARP.

Fannie Mae’s High Loan-to-Value Refinance Option

Beginning on Nov. 1, 2018, Fannie Mae has offered a high loan-to-value refinance option to borrowers with mortgages owned by the government-sponsored entity. The product is meant to make refinancing possible for borrowers who are maintaining on-time mortgage payments but have an LTV ratio that exceeds the amount allowed for standard refinance options.

Borrowers must benefit from the refinance through a reduction in their monthly principal and interest payment, a lower mortgage interest rate, shorter loan term or by switching to a fixed-rate mortgage. There is no maximum LTV ratio for fixed-rate mortgages; however, the maximum LTV for adjustable-rate mortgages is 105%.

The eligibility requirements include:

  • The loan being refinanced must be an existing Fannie Mae-owned mortgage.
  • The loan must have been originated on or after Oct. 1, 2017.
  • At least 15 months must pass between the loan origination of the existing mortgage and the refinanced mortgage.
  • Borrowers must be current on their mortgage, have no late payments over the last six months and only one 30-day delinquency over the last 12 months. Delinquencies longer than 30 days aren’t permitted.
  • The existing mortgage can’t be a Fannie Mae DU Refi Plus or Fannie Mae Refi Plus mortgage.

Freddie Mac’s Enhanced Relief Refinance Mortgage

Freddie Mac offers the Enhanced Relief Refinance mortgage to borrowers who are current on their mortgage but can’t qualify for a standard refinance because of a high LTV ratio. The mortgage being refinanced must meet the following requirements:

  • The mortgage must be owned or securitized by Freddie Mac.
  • The mortgage can’t have any 30-day delinquencies over the past six months and only one 30-day delinquency in the last year.
  • The closing date for the mortgage was on or after Oct. 1, 2017.
  • The mortgage can’t already be a Relief Refinance mortgage.
  • There should be at least 15 months between when the original loan was closed and the refinanced loan’s origination.
  • The loan can’t be subject to an outstanding repurchase request.
  • The maximum loan-to-value ratio for adjustable-rate mortgages is 105% and there’s no max for fixed-rate mortgages.

Borrower benefits include a lower interest rate, switching from an adjustable-rate to fixed-rate mortgage, shorter mortgage term or lower monthly principal and interest payment.

Alternatives to refinancing when you’re underwater

If refinancing your mortgage doesn’t sound like the best move for you, consider one of the following alternatives.

Mortgage modification

A mortgage modification is a way to change the original terms of your loan without going through the refinancing process. In some cases, you can work with your lender to switch from an adjustable-rate to a fixed-rate mortgage, extend your loan term, lower your interest rate or add past-due amounts to your unpaid principal balance.

Modifying a mortgage could be beneficial for homeowners facing hardship who aren’t eligible to refinance and are delinquent on their mortgage payments or expect they will eventually fall behind.

Mortgage recasting

If you have a lump sum of at least $5,000 in cash, you could potentially recast your mortgage. A mortgage recasting results in lower monthly mortgage payments. You pay a lump sum of cash to your lender to reduce your outstanding loan principal amount, then your loan is reamortized based on the lower remaining principal balance. Your interest rate and loan term stay the same.

This option makes sense if you’re expecting a bonus from your employer, a large income tax refund or some other financial windfall.

The bottom line

Although HARP has come to an end, there are still options for mortgage borrowers with Fannie- or Freddie-owned loans. In order to qualify for the enterprises’ refinancing programs, it’s helpful to maintain on-time payments even when your loan amount exceeds your home’s value.

If you don’t qualify, be sure to strategize on how best to attack your mortgage balance and rebuild equity. Consider making extra mortgage payments whenever possible by freeing up room in your budget, earning extra income or dedicating unexpected money to your mission.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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