The US government’s Making Home Affordable plan was released this morning. Millions of homeowners wanting to see if they qualify under the plan for either a refinancing or a loan modification will be eager to check out this program.
You might qualify for refinancing under the plan:
- If the home you want to refinance is your primary residence; and
- The loan on your home is controlled by Fannie Mae or Freddie Mac; and
- You’re current on your mortgage payments (not more than 30 days late on your mortgage in the last 12 months); and
- You have sufficient income to support a new mortgage.
You can owe between 80-105% of the current value of your home, but no higher than 105%.
If you think you might qualify to refinance, you’ll need to give the following documents to your mortgage lender:
- Your monthly gross (before taxes) income of your household, including recent pay stubs.
- Your last income tax return.
- Information about any second mortgage on the house (you can only refinance your first mortgage under the plan, but having a second mortgage won’t automatically exclude you).
- Account balances and minimum monthly payments due on all your credit cards.
- Account balances and minimum monthly payments for all your other debts, like student loans or car loans.
You might qualify for a loan modification (first mortgage only) under the plan:
- If you originated your mortgage before Jan. 1, 2009; and
- You are an owner-occupant; and
- You have an unpaid balance that is equal to or less than $729,750 (for a single-family home); and
- You have trouble paying your mortgage due to financial hardship – perhaps because your mortgage payments increased, or your income was reduced, or you suffered a hardship (such as medical problems) that increased your bills, or you can show that you soon will be unable to make your payments. You will be required to enter an affidavit of financial hardship; and,
- Your monthly mortgage payment must be more than 31% of your gross (pre-tax) monthly income.
You must successfully complete a three-month trial period at the modified rate. If you make all payments on time, you will keep this lower rate that will be fixed for five years.
The idea is for your monthly payments (not including private mortgage insurance) to reach 31% of your pre-tax monthly income. The monthly payments are defined as payments on the principal, interest, taxes, insurance (not including mortgage insurance) and homeowners association/condo fees. First, the lender will reduce the interest rate to no less than 2% on the loan, so that the monthly payments are less than 38% of your monthly income. Then, the Treasury will match further reductions, dollar-for-dollar, with your lender, to bring the monthly payments down further, to 31% of your monthly income.
If you keep your payments on time after the modification, the government will pay up to $1,000 each year in the first five years toward reducing the principal on your mortgage.
After five years, the interest rate on the loan will start to increase by no more than 1% per year, but can’t go higher than what the market rate was on the day your loan was modified.
The amount you owe versus the current value of your home doesn’t matter for this program.
The foreclosure process will stop while you’re being considered for the program, or for any alternative foreclosure prevention option.
The borrower does not have to pay any charges or fees. Any fees are supposed to be paid by the company that holds the loan, and the servicer of the loan will pay for your credit report. The company that services your loan will get a an incentive fee of $500 for each modification they do. Once your lender modifies your loan, they’ll be paid a $1,500 incentive.
Gather these required loan modification documents:
- Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources;
- Your most recent income tax return;
- Information about your assets;
- Information about any second mortgage on the house;
- Account balances and minimum monthly payments due on all of your credit cards;
- Account balances and monthly payments on all your other debts such as student loans and car loans;
- A letter describing the circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness, etc.).
Then call your mortgage servicer (the company you make payments to). Your servicer is not required to join the program, but the government hopes that the incentives will motivate them to participate.Kim Hannemann, Real Estate Consultant/Realtor®, Samson Realty Cell: 703-861-9234 • Fax: 703-896-5055 • Email: KimTheAgent@gmail.com
If you would like to discuss real estate questions, sell or buy a home in Northern Virginia – including Alexandria, Annandale, Arlington, Burke, Centreville, Chantilly, Clifton, Fairfax, Fairfax Station, Falls Church, Kingstowne, Lorton, McLean, Reston, Springfield, or Vienna – contact Kim today.
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