Wednesday, April 8, 2009

Obama's New Plan: Making Home Affordable Refinance

Do you Qualify for a "Making Home Affordable" Refinance? On March 4, 2009, guidelines were released under President Barack Obama's Making Home Affordable initiative, which is designed to help up to 9 million homeowners stay in their homes through refinanced mortgages or loan modifications.

To qualify, you must:

1) Owe between 80-105% of your mortgage.
2) Have a loan backed by Fannie Mae or Freddie Mac. Approximately 60% of single-family loans are backed by Fannie or Freddie, but a homeowner may not know this about their own loan. If you don't know, call Fannie at 1-800-7FANNIE and Freddie at 1-800-FREDDIE or submit online forms with Fannie and Freddie.
3) Have a conforming loan. That means a loan under $417,000 in many areas or up to $625,500 in high-cost areas like San Francisco, Boston or Washington, DC. Even still, the Zillow Home Value Index (median home value) for the city of San Francisco is $724,244, which says that lots of people have loans higher than the conforming limit. (Note: the conforming loan limit for certain high-cost areas of the U.S. for 2009 mortgage originations is now $729,500.)
Take this financialstability.gov Q&A to see if you qualify. If you don't think you qualify for a refinance, you might qualify for a loan modification under the plan.

Refinance Loan Overview
If You have an Adjustable Rate Mortgage (ARM) which was doing fine enough that you bragged about it but your loan is going to reset to a higher interest rate amidst market uncertainty and everyone is buzzing about it. Lying awake at night is interfering with your job, so you figure you'd better say goodbye to that low but fluctuating interest rate, and get a nice secure fixed-rate loan before the swing hits the sky.

This is a common scenario these days as interest rates inch up and many homeowners who opted for ARMs in the past 10 years are hoping to switch to a traditional loan.

Switching types of mortgages, as described above, is one reason people refinance, which is simply replacing a current mortgage with another. But there are others.

Reasons to Refinance Lower your interest, but keep your term: When rates drop you want to take advantage of it and lower your monthly payments, but keep the length of your mortgage.
Take care of that balloon payment: You opted for a short-term ARM with a balloon payment and the due date is looming, so you have to come up with a longer-term loan.
Shorten your term: Lower interest rates (or an increase in your income) mean you can pay down your principal faster.
Credit rating change: Take advantage of an improved credit rating and get out from under that high rate you had to accept when you bought.
You need cash: In some cases, you can refinance for an amount more than what you still owe on your home. Lenders limit the Loan to Value at no higher than 70 percent for this type of loan.

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