One of the first things President Obama did in office was try to help the millions of distressed homeowners who are struggling to pay back their mortgages. The Making Home Affordable program works to help these homeowners refinance their properties so that they can afford to keep them. The jury is still out as to whether or not this plan will work, but if you are struggling to pay your mortgage, you should know what it offers. Under this plan, those with mortgages they are struggling to repay may be able to refinance through the Home Affordable Refinance program or have their loans modified through the Home Affordable Modification program.
The Home Affordable Refinance program is available to borrowers who have mortgages guaranteed by either Freddie Mac or Fannie Mae. The program allows buyers with qualifying mortgages to refinance at today’s lower rates, giving homeowners the chance to have a monthly payment they can afford. The homes can be refinanced, even if their value has dropped below what is owed on them, which is a common problem many distressed homebuyers face in today’s market. The goal is to help the homeowner avoid foreclosure.
In order for homeowners to be able to refinance under the current program, they have to be current on their mortgage payments. Also, the amount on the first mortgage on the property, not counting any home equity loans or lines of credit, is equal to or slightly less than the current market value of the home. These homeowners must be able to afford the new payments, and they must be able to stand to gain by refinancing. Loans cannot exceed 105 percent of the current market value in order to qualify for the program. Credit ratings also affect a borrower’s ability to refinance.
Those who are behind on their payments will need to consider the Home Affordable Modification program. In order to qualify for this program, the monthly payment on the mortgage must be equal to or more than 31 percent of the household’s gross monthly income, and the homeowner must not be able to afford the current mortgage payment due to a change in income or expenses.
Under this program, borrowers can have their interest rates temporarily modified so that they can stay in their homes. The modification is based on the borrower’s income, but rates could be dropped as low as 2 percent. Lenders may also extend the term of the loan to make the monthly payment more affordable under this program. The goal is to keep the homes out of foreclosure, a situation that is costly to both the homeowner and the lender.
