Mary Cass, Member
If done carefully, a refinance can help you avoid a foreclosure. To lower your monthly payments to a more affordable level, you would need either a mortgage with a longer term, or a mortgage with a lower interest rate. In this position, there are a few steps that you should take to optimize your search.
The terms of a refinanced mortgage depend on the same factors as any other type of mortgage - your credit score, income, and any existing debt. The earlier you can act, the more options will be available. You will likely qualify for much lower rates before your credit score has taken a hit, and if you can still demonstrate the ability to make monthly payments.
Start With Your Current Lender
Your lender may agree to suspend payments for a “forbearance” period until you can begin making payments again, if your financial problems are short-term. If not, they may be able to offer you refinancing options - for example, if your interest rate is significantly higher than current market rates, the lender may be willing to renegotiate. The benefit of working with your current lender is that you usually can avoid certain fees at closing costs that were included with the first mortgage – title search, property appraisal, etc. It also may be in your lender’s interest to negotiate, especially if it means they will continue to receive payments.
Although refinancing your mortgage can be one way to avoid a foreclosure, it is not the only way. Depending on your circumstances, you may qualify for loan assistance programs – if still employed, for example, you may be eligible for the federal Home Affordable Modification Program. Federally-backed loans like VA loans and FHA loans offer their own programs. As a last resort, you might consider filing for Chapter 13 bankruptcy. This would require you to restructure certain debts and make monthly payments, but would allow you to stay in the property.
I’m sorry to hear that you are fearing a foreclosure. There may be a few option you have left. Refinancing your mortgage, before the foreclosure process begins, can help you to reduce your payments. Right now, refinancing interest rates are very low, so this option may be your best bet. Typically, refinancing is available if you: 1. Qualify for a new loan, 2. Have not missed mortgage payments, and 3. Have decent credit. I don’t know your exact situation, but if you fit this description, you should speak with a lender to see what your options are.
If your home loan is owned by Freddie Mac or Fannie Mae, you may have an additional option. The Federal Program known as HARP, or Home Affordable Refinance Program, is similar to the typical refinancing option. However, it is easier to qualify for the new loan (there is no equity requirement), and you need to be able to afford the new payments (have a source of income). To see if your loan is owned by Freddie Mac or Fannie Mae, visit this site: https://ww3.freddiemac.com/loanlookup/.
The Federal Government is also running a few additional programs that may assist you. These include HAMP, or the Home Affordable Modification Program, which will lower your monthly payment to less than a third of your monthly income, in order to ensure you can make payments. Another program is the PRA, or Principal Reduction Alternative, by reducing the total amount you owe on your home. To see if these or other programs apply to you, visit this website: https://portal.hud.gov/hudportal/HUD?src=/topics/avoiding_foreclosure.
Another option, not run by the federal government, is the Neighborhood Assistance Corporation of America Refinance Program, (NACA). This is a non-profit homeownership organization, which may assist you. They help “eligible homeowners with unaffordable mortgages,” and their assistance is free. Overall, there are a lot of programs that could help you keep your home.
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