After the financial crisis and housing downturn, homeowners are finding it difficult to refinance. Refinancing could potentially help them pay less each month, pay off a home sooner, or get into a safer fixed-rate loan -- but it’s hard to qualify. As a result, several refinancing programs are now available that help borrowers get a new loan.
In general, these programs are designed to help homeowners -- and sometimes investors -- get into plain-vanilla loans with low rates. In some cases, your interest rate or monthly payment has to decrease (unless you’re moving from an adjustable rate mortgage to a fixed rate mortgage) and you generally can’t take any cash out. In any case, refinancing should improve your situation and help you move forward.
Making Home Affordable
The most significant initiative for refinance programs is the Making Home Affordable (MHA) program. This program uses a variety of strategies, including refinancing assistance, loan modifications, and help for the unemployed. Visit the MHA website to get the latest news on new programs and changes to existing programs. MHA also offers the Homeowner's HOPE Hotline, which is staffed with HUD-approved counselors, and borrowers can call 24/7 (888-995-HOPE).
Home Affordable Refinancing Program (HARP)
The Home Affordable Refinancing Program (known as HARP or HARP 2.0) is the main refinancing program of MHA. HARP allows homeowners to refinance certain loans even if they owe more than their home is worth (if they are “under water” on the loan). HARP has had only limited success because it has been difficult for homeowners to qualify for the program.
Read about the details of HARP 2.0.
To qualify for HARP, your loan must be held with Fannie Mae or Freddie Mac (many loans meet this requirement). Even if you make mortgage payments to somebody else -- like a bank, for example -- your loan can still be on Fannie or Freddie’s books.
Refinancing FHA Loans
The Federal Housing Administration also offers a refinancing program for homeowners with FHA loans. Like the HARP program, FHA’s Streamline Refinance Program allows you to refinance an underwater mortgage loan. In addition, you can get the transaction done with very little documentation. To qualify for a streamline refinance, you must already have a FHA loan. Talk to your current lender or another FHA-approved lender to get more details
Refinancing VA Loans
Borrowers with VA loans may be able to refinance with the Interest Rate Reduction Refinancing Loan (IRRRL) program. This program allows you to get a new VA loan with a low fixed interest rate. No appraisal is required by the VA, but lenders that you work with may require an appraisal. If your house is underwater, you may need to shop for a lender that will move forward without the appraisal. Either way, it’s a good idea to talk to several different lenders so that you get the best deal.
For details on IRRRL, talk to any lender that handles VA loans (your existing lender is a great place to start).
Refinancing USDA Loans
As of this writing, USDA refinancing programs are still in development. So far, the Single Family Housing Guaranteed Rural Refinance Pilot Program is only available in 19 of the hardest hit states. Like other programs, this program is designed to let underwater borrowers refinance at low rates with minimal documentation. The pilot is expected to run through 2014, but it may be worth your while to find out if it’s expanded into your area.
To find out if you can refinance, contact any USDA Rural Development office through USDA.gov.
What if your loan is not with Fannie Mae, Freddie Mac, FHA, or VA? Other refinancing programs are available for non-government backed loans. However, these programs are quite restrictive and require your current lender to play along. FHA’s Short Refinance program can help you get into an FHA Loan that is closer to your home’s market value. The FHA Second Lien Program (FHA2LP) helps you deal with a second mortgage.
None of the Above?
If none of the programs above are right for you, you can still try to refinance with any bank or lender. However, it may be difficult, especially if your home is underwater, if your credit is suffering, or if you’ve lost a source of income. In those cases, it’s always worth asking, but the odds are not good. If you’re not having any luck, talk to HUD-approved counselors and certified consumer credit counselors to get more ideas.