Oct 10 2008
Refinancing Alternative for Pittsburgh Homeowners
In my last post, I covered the Hope for Homeowners Act of 2008.
As an alternative to this FHA program, homeowners may want to check into a lender-direct loan modification instead. Here’s why:
* Under the HOPE for Homeowners program, a new loan is originated and the interest rate on the new loan is likely to be at current market rates. Under a direct-lender loan modification, the homeowner may be able to negotiate a below-market rate.
* The FHA program requires that the new loan be a minimum 30-year term. Under a direct-modification, the lender may offer a shorter term for the loan.
* On the new FHA loan, the homeowner is required to pay a 3.0% up-front mortgage insurance premium as well as a 1.5% monthly premium. There may be no insurance or other premiums required for a direct lender modification.
* In addition to the mortgage insurance premium, under the FHA program the homeowner will have to pay customary closing costs which could be as much as 3.0% of the loan amount. Closing costs for a direct lender modification may be less.
* A second mortgage cannot be placed on the new mortgage for a five-year period after the FHA HOPE for Homeowners loan is originated.
* The equity gained on the home in the future is shared with the FHA. The shared equity starts at 100% to FHA during the first year and remains at a minimum of 50% to FHA from five years from origination throughout the duration of the mortgage. If or when property values increase, the homeowner could lose a substantial amount of the profit when the home is sold, depending on the value of the home and the appreciation amount.
So, a lender-direct loan modification may, or possibly may not, be a better deal for the homeowner. As in any financial situation, consumers should weigh all options and seek advice from competent experts.
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