Refinance and Modification Examples
Example #1 - Meet Jim and Mandy - They need to refinance their mortgage through the Making Home Affordable Program
Jim and Mandy have steady jobs – Jim is a middle school teacher, Mandy is in advertising. They pay their bills on time, including their monthly mortgage payment. Like many homeowners, Jim and Mandy are unable to refinance to a lower interest rate because the value of their home value has crashed and hope to use the making home affordable program.
Do Jim and Mandy qualify to refinance to a lower interest rate under the Making Homes Affordable Program? They just might because they meet the following requirements:
- They own a one to four unit home.
- The mortgage loan on their house is owned or guaranteed by Freddie or Fannie.
- They are current on their mortgage payments and have not been 30 days late making a mortgage payment within the past 12 months.
- Their mortgage is no more than 105% of the value of their home; in this case they owe $239,000 on their first mortgage but their home value dropped to $250,000.
Like Jim and Mandy, you may be able to refinance under the making homes affordable plan and take advantage of lower interest rates to reduce your mortgage payments. If so, here are the answers to some of the questions you may be asking.
How do I know if I have a Fannie Mae or a Freddie Mac loan?
Go to Loan Look Up for contact information for Freddie Mac and Fannie Mae. You can call or fill out an online request form to find out if Fannie Mae or Freddie Mac owns or guarantees your mortgage loan and then search for an approved making homes affordable mortgage lender.
How do I know if I am eligible through the Making Home Affordable Program?
Eligible mortgage loans include those where the first mortgage (including any refinancing costs) does not exceed 105 percent of the current market value of the property. For example, if your house is worth $300,000 but you owe $315,000 or less you may qualify. The current value of your property will be determined after you apply to refinance under the making homes affordable program.
You may only refinance your first mortgage under the making homes affordable program not a second mortgage. If that mortgage is less than 105 percent of the value of the property, you may qualify.
Your eligibility will depend on whether you are able to make the new payments on the first mortgage. The lender on your second mortgage must agree to remain in the second position.
Will refinancing lower my payments through the Making Home Affordable Plan?
Generally yes. If your mortgage interest rate is higher than the current market rate you should see an immediate reduction in your payments. If your existing mortgage requires you to pay interest only and no principal, or if you are currently paying only a low introductory (or “teaser”) rate, you may not see your current payment go down. However, refinancing to a low, fixed rate mortgage can reduce the risk of payment shock when your monthly payment amount changes, and refinancing could save you a great deal of money over the life of the loan.
What would my new interest rate be If I qualify through the Making Home Affordable Program?
The rate will be based on market rates at the time of the refinance and any associated points and fees quoted by the making home affordable lender.
Will refinancing reduce the amount that I owe on my mortgage loan under the government approved Making Home Affordable Program?
No, refinancing will not reduce the amount you owe on your mortgage loan or any other debt you may have. However, by locking in a low fixed interest rate, it should save money over the life of the mortgage loan.
When can I apply?
You can apply now, and should reach out to your making home affordable approved servicer or a housing counselor to determine if you qualify.
Making Home Affordable Modification Example
Example #2 Meet Jennifer — She needs a making home affordable mortgage
Jennifer, a single mother with three children, works in retail sales. Recently, the store downsized. Jennifer’s hours were cut and she has less money coming in each month. Jennifer is now struggling to keep up with her bills and missed her last mortgage payment.
Does Jennifer qualify for a loan modification under the Making Home Affordable Program? She just might because she meets the following requirements:
- She is an owner of a one- to four-unit property
- She has an unpaid principal balance of $179,000, which is far less than the $729,750 loan limit.
- Her current mortgage payment (including taxes, insurance, and homeowners’ association dues) is $2,100 per month and her gross (pre-tax) monthly income is $4200. Her monthly mortgage payment is 50% of her monthly income, which is greater than the 31% eligibility requirement.
- Jennifer has a mortgage payment that is no longer affordable because of a reduction in income.
Like Jennifer, you may be struggling to pay your mortgage, perhaps because your income has been reduced or you have another financial hardship. If you are struggling to pay your mortgage, here are answers to some of the questions you may be asking about the making home affordable plan.
Do I need to be behind on my mortgage payments to be eligible for a loan modification through the Making Home Affordable Program?
No. If you are struggling to stay current on your mortgage payments you may be eligible if your income is not sufficient to make your payments.
How do I know if I qualify for a payment reduction under the Making Home Affordable Plan?
In general, you may qualify for a mortgage modification if:
- 1) You occupy your house as your primary residence;
- 2) Your monthly mortgage payment is greater than 31 percent of your monthly gross (before tax) income;
- 3) Your loan amount does not exceed $729,750, the current Fannie Mae and Freddie Mac loan limits, and
- 4) You are unable to afford your current payment. Final eligibility will be determined by your mortgage lender.
The mortgage I’d like to modify is on a second home or rental property. Is this mortgage eligible for modification under the Making Home Affordable Program?
No. Only the mortgage on the property that you live in is eligible.
I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible under the Making Home Affordable Program?
Yes. Mortgages on 1 - 4 unit properties are eligible as long as you live in one unit as your primary residence.
I have two mortgages. Will the Making Home Affordable Program reduce the payments on both?
No. Only the first mortgage is eligible for a modification.
I owe more than my house is worth. Will the Making Home Affordable Program reduce what I owe?
The goal of the making home affordable plan is to help homeowners avoid foreclosure by modifying their loans to make payments more affordable. Making home affordable mortgage lenders are likely to lower payments first by reducing interest rates. However, your making home affordable mortgage lender may also choose to reduce your principal amount.
Is there a financial incentive for homeowners through the Making Homes Affordable Plan?
Yes. To encourage homeowners who work hard to keep their homes, the making homes affordable plan provides them with a financial incentive to make timely payments on their modified loans. Borrowers who pay on time for five years will have up to $5,000 applied to reduce their principal debt on their first mortgage.
Does the Making Home Affordable Program charge a fee to modify my mortgage loan?
There is no fee to modify your mortgage loan through the making home affordable program.
