Foreclosures have struck communities across the country in the wake of the subprime meltdown and ensuing housing slowdown.
While the FHA continues to garner headlines as an increasingly attractive lending option for prospective homebuyers, one of the agency’s lesser known programs may hold the key to helping to rebuild neighborhoods nationwide.
Government loans are headed for a record year in 2009. The FHA’s traditional home loan program has grabbed significant market share in the last fiscal year. But its unique program for purchasing and refurbishing rehab properties is gaining momentum.
The FHA 203(k) program provides qualified borrowers with fixed-rate and adjustable-rate mortgage options, which can be used for buildings anywhere from one- to four-family in size. Down payments, like the traditional FHA loan, are as low as 3.5 percent. Generally, the FHA will set the loan amount based on what the agency thinks the home will be worth upon completion of all rehab work – that includes the actual costs of repair.
Buyers can even use the 203(k) program on structures that were torn down, provided there’s some semblance of foundation at the site. A 203(k) loan can be used to cover rehabilitation costs such as room additions, painting, building decks, and a host of other alterations. Other acceptable refurbishing includes:
Buyers can also take advantage of the FHA’s Energy Efficiency Mortgage program and finance into the mortgage the cost of significant efficiency improvements. There are specific values and dollar limits for the agency’s EEM program.
Underwriting standards can at times be stricter for 203(k) loans, although there are no income or credit score restrictions to qualify. In most cases, the rehab work must start within 30 days of closing, be complete within six months and be professional in nature.
The 203k program doesn’t cover things like luxury improvements, which homeowners have to pay for from their own pockets. To learn more about FHA 203k loans, visit the HUD website here.
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The Government is making all kinds of efforts to help home owners modify their loans so that monthly mortgage payments are more affordable. Forecasts predict that upto 9 million home owners will end up losing their homes when their mortgages foreclose.
For the last year I have been reporting on the different measures the government is implementing to extend loan modifications to as many people as posible. For instance, now you don´t even have to be behind in your payments to qualify.
However some feel that this is not enough. For example one of the requirements to apply for a Home Affordable Mortgage Program is that your mortgage is over 31% of your income. If your mortgage is 31% or less of your monthly income then you will not qualify for a mortgage modification. This requirement makes it imposible for home owners is trouble that have other loans besides their mortgage and cannot afford to pay their debts.
There are at least to school of thoughts on government sponsored modifications. One group, which we will call the ¨Who cares” group will say that owning a home is not a right but a privilege. The other group we could describe as the ¨Poor Borrowers” suggest that protecting home owners that have overspent or fallen in financial dificulties is the Government´s responsibility.
Last week one blogger commented on an article I wrote explaining how many borrowers cannot benefit from HAMP, the Obama Administration Loan Modification Program because their mortgage payments are too affordable to qualify, while their total debts make it imposible to get to the end of the month.
The bloggers comment was that it was bad enough we are bailing out home buyers at all and that suggesting we should bail out home owners whose mortgage payments are less than 31% of their income and that have still found a way to get in the red with other debts was a travesty. I could easily agree with him. I have made bad financial decisions in the past and nobody offered to bail me out. It is only right that we pay for our own bad decisions just as we profit from our good choices.
However the side of the store is the overall effect to the economy if 9 million people foreclose on their mortgages. What would be the effect on construction, credit and related services if such a large percentage of home owners foreclosed in one year. Viewed from this perspectiva bailing out home owners is more about helping the economy as a whole than specific individuals.
Of course many of us disagreed when massive bank corporations recieved bailouts to save them from the credit crisis. It would seem reasonable to allow the market forces to take their course whatever the consequences for a particular company is.
I couldn´t agree more, but what would have been the effect on the World economy if dozens of the world´s biggest banks had fallen into bankruptcy at once?
That is the paradox goverment policy makers have to deal with. To let market forces deal with people´s mistakes and problems or bail them out.
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HARP, the government Home Affordable Refinance Program has consistently grown and expanded the help provided as more power and finances are invested in this program.
If you are in danger of losing your home or are struggling to make payments HARP could provide you with the break you need to get back on your feet.
If you are in that situation you probably have many questions you would like answering. How can I know if I am eligible for aid under HARP? How do I know if I will actually benefit from a HARP loan refinance? Or probably the scariest, I owe more on my property that it is worth, do I still qualify for a refinance with HARP?
What are the requirements to qualify for HARP?
1.) Your loan must be owned or guaranteed by Fannie Mae or Freddie Mac. Most people don’t actually know if this is the case and unfortunately in many of the hardest hit areas by the economy in the United Sates Freddie and Fannie don’t guarantee a large percentage of the loans. For you to find out if your loan is guaranteed or owned by Freddie and Fannie you can either contact your mortgage provider or find out at their respective websites.
For Fannie Mae 1-800-7FANNIE (8am to 8pm EST). www.fanniemae.com/loanlookup . For Freddie Mac contact -800-FREDDIE (8am to 8pm EST)
o www.freddiemac.com/mymortgage
2.) The amount you owe on your FIRST mortgage cannot exceed 125% of the value of your home. This figure has been increased a few times in an effort to include those that really need the HARP program.
3.) You must be current on your mortgage payments. Current means not having being later than 30 days on your payment in the last months or never having missed a payment if you have had the loan for less than 12 months. It seems strange that a mortgage aid program will only allow people that are “current” on their payments to participate, however the idea of the program is to provide long term help allowing homeowners that can reasonably rearrange their finances to pay their mortgage not provide emergency help to people who simply cannot meet their mortgage payments.
4.) The loan modification must improve the overall long term affordability of the loan. This can me an different things depending on the mortgage. For instance if you switch from a variable interest or ARM mortgage to a fixed interest mortgage your initial payments might rise a little but your long term stability and ability to pay for your mortgage may increase.
How can you know if you a HARP loan modification will benefit you? The key is to understand the cost and benefits of your loan and to get that information you need to documents, a “Good Faith Estimate” and a Truth in Lending Statement”. The two disclosures will spell out for your new interest rate, mortgage payments, fees and other expenses. You can then compare the “new deal” with your current mortgage to assess if it is actually beneficial for you.
I hope this article has answered some of your questions on HARP. However if you are thinking of applying for help you have probably got many more questions, the best thing you can do is visit HARP’s website at www.makinghomeaffordable.gov where you will find these and other questions answered.
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