What Are the Mortgage Assistance Programs Available to You?

When situations occur that create financial hardships for homeowners, many find themselves in jeopardy of losing their homes due to foreclosure because they are not able to afford their mortgage payments. Whatever situations homeowners face, they should not just resign themselves to failure, as there are options available if they take action early. Most lenders are willing to work with borrowers in order to avoid foreclosure if there are other options available, including government-subsidized programs. The key is communication and taking action as soon as possible in order to resolve the problem in the most amiable manner.

Homeowners who have equity in their home may qualify for refinancing their home. Various factors that decide the new mortgage payment include the difference in interest rates, the percentage of equity in the new loan, the borrowers’ credit, the amortization schedule and Premium Mortgage Insurance, hereafter referred to as PMI. Several of the factors are dependent upon their own string of variables, many of which borrowers have the ability to control when determining the outcome of the refinancing process.

The first factor that borrowers have influence over is their credit. Those with better credit scores qualify for better interest rates. Factors that determine consumer credit scores include payment history of debt obligations and the amount of available credit. Homeowners with too much available credit need to close credit card accounts with zero balances. In addition, people with credit cards can call the credit card issuer and request the issuer to reduce the allowable credit.

Those with loans that have mortgages currently insured by the Federal Housing Administration, hereafter referred to as FHA, can increase their mortgage to the new limit of 105 percent. By increasing the principle amount owed, homeowners can consolidate their other debts, effectively reducing the number of other payments previously required to pay their other obligations. Homeowners should use this debt consolidation process with extreme caution, closing credit card accounts they have now paid in full. However, homeowners should keep in mind that whenever their mortgage balance is greater than 80 percent, most lenders charge Premium Mortgage Insurance, referred to as PMI, which is 0.5 percent of the principle balance of the loan.

Homeowners with FHA loans can also apply for a loan modification. A loan modification adjusts the loan term so that the new mortgage payment does not exceed 31 percent of the gross monthly household income. Homeowners need to meet federal guidelines to qualify for a mortgage loan modification. Loan modifications have a negative influence on recipient’s credit score but the effect is not as bad as a foreclosure and, if the homeowner is able to follow the terms of the new loan contract, they will not lose their home and whatever investment they have in it.

An FHA short refinance is another type of loan modification. This program, which depends upon the discretion of the lender, reduces the amount of principle owed. In addition, this program targets responsible homeowners who owe more on their home than it is worth, primarily due to the nation-wide downturn in the real estate market. Unlike the regular loan modification program, homeowner must be current on their mortgage contract. In contrast, one of the requirements to qualify for a loan modification is that the homeowner(s) must miss at least three payments.

With the various mortgage assistance programs available, homeowners need to choose wisely in order to obtain the assistance that fits their particular set of circumstances. Finding the best assistance program will likely save a homeowner from losing their home due to foreclosure. Perhaps the most important steps homeowners can take are early action and seeking the services of a professional financial counselor.

Continental Home Loans Inc. is the largest independent FHA mortgage lender in New York State and the Number One FHA Lender on Long Island.