Part of the Obama Stimulus Plan included a streamlined refinance program called the Making Home Affordable Plan that could potentially save participants hundreds of dollars per month on their house payments. This "streamline" process contains a number of hurdles one will have to navigate through.
This article will provide you with the quickest way to find out both if you qualify and whether the program is worth it for you. It will also speed up the process for your bank to help you take advantage of this window of opportunity.
The first step is to find out whether your primary home loan was backed by either Fannie Mae or Freddie Mac. More than half of all homes have one of these loans. Surprisingly, banks often don't have this information readily available. Instead of waiting for your bank to conduct the research, you can find out instantly by going to the below links for Fannie Mae and Freddie Mac. Simply submit you home address and any other identifying information requested.
For the Making Home Affordable refinance program your home must also be from one to four units.
Another qualification for this program is that the value of your total home loan(s)to the value of your home must not exceed 125 percent. Thus it is possible that even if you owe more than your house is worth, you could qualify. If you do not meet this qualification because of recent devaluation of your property, however, you may still qualify if your most recent assessment falls within this range. This is because this streamline finance program does not require a property reassessment.
Another requirement for the Making Home Affordable REFINANCE is that you have been current (not later than 30 days) on all your mortgage payments the last 30 days. If this is not the case, you can still investigate your eligibility for a companion program, the Making Home Affordable MODIFICATION. Refer to the link below and then consult with your mortgage banker.
After you have determined that your primary mortgage qualifies and that you meet all the above requirements, you need to determine whether there would be any additional requirements by your second mortgage or lein holder. If you only have one mortgage, or the same bank holds a first and second mortgage on your home, you can proceed to the next step. If another bank or financial institution holds a second mortgage or lein on your home, you will have to seek their permission to remain in their same order if you refinance. This is called subordination. Call this bank's home mortgage department and ask to speak to someone about subordination. The larger banks may even have a subordination department. There is typically a standard form you must fill out to apply. If so, request that it be sent to you. Also be sure to ask whether this second institution requires a reassessment of your home.
Now you must begin to determine whether this refinance program would be potentially worth it for you. Of key importance is whether and how much the current interest rate is less what you are currently paying. Virtually all banks post their current home mortgage rates online. Make sure that the rate you are looking at is without an origination fee and that it is for the same term (for instance, 30 years) as your current mortgage. If the difference between the two is one percent or greater there is a good chance a refinance could save you significant money on your monthly payments. It is even possible that a difference of as little as one-half percent could be worthwhile.
Good credit is still important, because this will affect the interest rate you can receive under a refinance. The interest rate you see quoted by your bank assumes good credit. It may be well worth it to check your credit score to see if it is adequate (usually 700 or more is fine)and to check to see if there are any inaccuracies. Simple steps like paying off or paying down your credit card balances may be able to quickly boost your score.
Another factor in considering whether the Making Home Affordable refinace is worth it involves the ratio of the amount you owe on your home to its value. Something that is not advertised is "add-on" requirements that both Freddie Mac and Fannie Mae. If this ratio is more than 95 percent, both institutions are requiring additional interest rate increases, perhaps as much as one-half percent.
Now you are ready to meet with a mortgage banker from your primary mortgage holder. Let him or her know if your mortgage was a Fannie Mae or Freddie Mac loan. If it was not and there is a difference of a half-percent or more, it may still be worth it to discuss whether any other refinance options are available to you. He or she should be able to calculate precisely if a refinance would be worth it for you and how much you could save. If you have obtained a subordination agreement form or information, give this to your banker.
If you qualify for the Making Home Affordable Refinance, after subordination issues if any are resolved, your banker should be able to lock in a new rate for you in relatively short order.
If your home's value is close to qualifying for the program, consider paying down your mortgage enough to qualify. This may save you a lot of money in the long run.