New Site Allows You to See if You May Qualify
You may have heard about the Making Home Affordable (MHA) plan that’s part of the greater financial stimulus efforts, but what is it all about exactly? Well, the idea is to help homeowners refinance or modify their loans when in the past they may not have qualified for such assistance. If you’ve ever considered refinancing your mortgage in the past, you may have found out that you typically needed to have 20% or more of equity in your home or more in order to refinance. Unfortunately, with the sharp decline in home values across the nation, there is a good possibility that even responsible homeowners who put 20% down on a new home just a few years ago could now be in a situation where they don’t have the required equity to refinance.
The MHA plan has changed all of that. Through June 2010, borrowers with loans that are owned or guaranteed by Fannie or Freddie may be able to get quick refinances for up to 105% of a home’s value. They must be current on their mortgage payments, but administration officials estimate that as many as 5 million homeowners qualify. And refinancing is available for borrowers with credit scores as low as 620.
Why a Refinance May Make Sense
Part of the fallout in this economy has been mortgage rates. Rates have fallen sharply in the past year and are sitting at near record lows. 30-year fixed rate mortgages are now averaging under 5% and if you have good credit you may even be able to snag a 15-year mortgage with a rate close to 4.5%. In many cases, this could be 2% less than what you were able to get on the same mortgage just a few years ago.
To understand what that could mean for your monthly payment, a 30-year fixed rate mortgage of $150,000 at 7% compared to the same mortgage at 5% is nearly a $200 difference each month. What could you do with an extra $200 each month?
Why a Refinance May Not Make Sense
So, if you can get a lower rate and save good money on your monthly mortgage payment it’s a no-brainer, right? Not exactly. In most cases, a refinance isn’t free. You’re creating a new loan, and most of the time this means there will be fees. Without shopping around it’s hard to tell how much you’ll pay in fees, but in some cases it can be a few thousand dollars. This is an important consideration if you’re not planning on staying in your house for much longer. You have to factor in the length of time it will take to remain in the home in order to offset the fees. If you don’t stay in your home long enough it’s possible the refinance could actually cost you more money than it saves. You also have to be careful with paying points and everything else to make sure you’re really getting the savings you’re looking for.
How to See if You Qualify for a Refinance or Loan Modification Online
Assuming you want to consider a refi and aren’t sure if you qualify under the new MHA guidelines, how can you find out more? The good news is that in most cases you can do this from the comfort of your computer. The first step would be the government’s Making Home Affordable website. The site is free, safe, and simple to use to see if you qualify for a refinance or a loan modification. I went through their questionaire with our information and I was pleased to discover that it was accurate.
There’s also another site that’s sponsored by myFICO that’s completely free and will also check your eligibility and it’s called Mortgage Relief Online. The main difference here is that at the end of the questions you have the option to provide your contact information so that a qualified counselor can contact you to help walk you through your options. I also used this site and it too guided me to the correct information and I didn’t even have to provide my contact information if I didn’t want to. But that may be a nice option for those who are looking to talk to someone and get some advice.
But these tools can only do so much. One of the major requirements to qualify for the MHA benefit is that your loan has to be owned or guaranteed by Fannie Mae or Freddie Mac. Since your loan is likely serviced through a bank or mortgage company, how can you tell if your loan is associated with Fannie or Freddie? In the past, you’d likely have to call your lender and have them provide the information. Now, you can check online or by calling an 800 number. If you walk through the sites listed above, you’ll get to the lookup pages anyway, but if you want to check it out yourself, here’s how to do it:
- 1-800-7FANNIE (8am to 8pm EST)
- 1-800-FREDDIE (8am to 8pm EST)
I knew our mortgage was guaranteed by Fannie Mae so I went ahead and tried both of these forms to see how accurate they were. The Fannie Mae tool did in fact say they had our mortgage on record, and the Freddie Mac tool said they did not have it. So, again the tools seemed accurate. Of course, there are still situations where there could be a misspelling or outdated info that could make your results turn up incorrect, but this is a good starting point.
If you’re wondering if you might qualify for refinancing, these are good tools to get you started. I know that finding time to call the bank or dealing with some customer service people can be frustrating, so this can hopefully save you some time initially. Once you find out if you qualify, you can then go directly to your lender with all of the information needed to refinance and save some time.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
Unfortunately, this does not address the millions of Americans, like me, whose loan is not with FNMA or FHLMC. I am quite irritated with this MHA business, because it leaves a lot of us out and a lot of us are making our payments on time. The only reason we can't refi is because we are upside down in our homes and because we do not qualify for MHA, we have to get an appraisal which absolutely kills the deal.
I am getting ready to refinance as well. The closing costs are closer to $2,000, but I will be saving close to 200 a month. A co-worker recently just refinanced under this plan and got a rate of 4.875.
Sounds like you are getting a good deal on your refi and your plan to apply your 165 extra to your payments is a good idea. You will cancel a lot of interest.
You should check what I did for my last client. They had a new 30 yr loan of 200,000. With an extra $200 per month they will pay off in 15 years. Guaranteed!
Surprisingly, I just started the refinance process with our bank last week. We locked in a 4.875 interest rate and closing costs will be about $900. We went through the same bank that our mortgage is currently with and as of right now the process seems pretty painless. We will be saving about $165 a month, so I estimate that our closing costs will be recouped in about 5 or 6 months.
Our plans are to take a portion of the $165 savings each month and have it automatically applied to the principle of our mortgage. The additional we will use to cover current expenses and boost our savings.
Guess what? For every dollar you pay your mortgage lender 83 cents of every dollar go to interest. YES 80 cents on the dollar. THAT's how the banks build those big buildings. (83 cents is based on the first yr of a 200,000 30 yr loan at 6%.)
Mortgages are heavily front end loaded in interest and your loan officer may or may not realize exactly how. For sure they don't like to talk much about it.
So when you refinance you go back to paying these high front end costs all over again. Paying off a house is like hiking out from the bottom of the Grand Canyon. Its a long hike. Not easy always.
Refinancing is like going back to the bottom and starting all over again. Sure your back pack might be slightly less heavy but if you have ever hiked out of that canyon.......