FHA Second Lien Program – An Overview

FHA Short Refinance Program is a program which helps out those borrowers whose principal debt is more than the cost of their homes. It allows such borrowers to refinance to an FHA loan where the monthly payment is lower. The program was introduced in 2010 and it was estimated to generate 500,000 FHA loans taken up by 1.5 million borrowers. However, currently, only 4,600 FHA loans have been lent under the program. FHA Short Refinance is a voluntary program.


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What Are The Participation Requirements? – The program is only for those borrowers whose property’s worth is less than their current loan amount. Traditional underwriting rules must be met by borrowers who want to refinance to an FHA backed loan. This includes having 500 as the minimum credit score. The borrower’s income should also be enough to support the current loan payments. The FHA Short Refinance program prevents strategic defaults on loan payments.

How Does FHA Short Refinance Work? – For eligible borrowers, the company servicing the loan must agree that the balance of the loan would be reduced by 10% at least. The new loan would not be more than the current value of the house by 97.75%. If the loss is acceptable to the borrower, an FHA backed loan would be provided at the current rate of interest.

What Are The Costs To The Borrower? – The costs include refinancing fees because of the mortgage refinance. Also, the FHA backed loan would require the borrower to pay mortgage insurance.

Which Homes Qualify For FHA Short Refinance? – Only first homes occupied by the borrower qualify for this program. This means that second homes and investment properties are not eligible.

Are Loans Modified Under A Different Program Eligible? – HAMP is one of the other modification programs that still allow the borrower to use Short Finance program, provided there has been a month since it was made permanent. In other cases, borrower must have made 3 timely monthly payments and their modified mortgage should be current. Trial and temporary loans would not be eligible.

In order to find out about eligibility, borrowers can discuss this program with their mortgage service providers.

Gina Wilson

Another post from Gina Wilson – Credit & Loans Specialist Blogger.