The FHA Secure program was introduced in late 2007 by the Federal Housing Administration and President Bush. Unlike most other FHA loan programs, this program is designed for homeowners who are at risk for foreclosure due to steeply increasing payments on adjustable-rate mortgages. The majority of people in the program have subprime loans, but homeowners with hybrid ARMs, option ARMs, and prime-rate ARMs may also qualify.
FHA Secure Eligibility
Contrary to initial reports, you don’t have to be delinquent on your mortgage in order to qualify. You also don’t have to wait until your rate resets to apply for a loan under the program.
If you meet the following requirements and lending standards, you may be eligible to refinance through the program:
* Original loan was not an FHA mortgage
* Payments prior to the reset were current
* No late payments in the six months prior to the reset
* Adequate income to meet payments under a new mortgage
* Debt-to-income ratio less than 43%
* Minimum 3% equity in the home
* Rate has reset or will reset by December 31, 2008
* Remaining loan balance is lower than the local loan limit. FHA loan limits (FHA-loan-limits) are now regionally determined, so check to see whether your loan is within the range.
If you’re delinquent on your mortgage, the default must be due to interest rate shock. If you’re in default due to other factors, you may not qualify for the program.
How to Apply for the Program
If you believe you’re eligible, contact an FHA-approved lender. They can discuss your options and determine whether you’re likely to qualify. You can also check your potential eligibility by completing a home loan request through Bills.com.
Additional Loan Factors
In addition to the above qualifications, additional factors help determine whether your loan can be refinanced into an FHA Secure loan. These factors include a pre-payment penalty or a current home value that is lower than the loan balance.
If your current loan has a pre-payment penalty, you have three options:
* Come up with the cash to pay it
* Roll it into your new loan
* Negotiate with the lender to forgive the penalty.
In order to roll the penalty into your new loan, the penalty plus the old loan balance and any closing costs being included in the new loan must not exceed 97% of your home’s current market value.
Many homeowners who bought at the peak of the market find that their homes are now worth less than their loan balances. FHA loans do not automatically reduce your previous loan balance to an allowable level. If you owe more than the home is worth, you have three options:
* Negotiate with the lender to accept a short pay-off
* Apply for a small second loan to cover the difference between your new loan and the old loan
* Pay the difference between loans in cash.
If the only other option is foreclosure, your lenders may be motivated to negotiate the pre-payment penalties or a short pay-off, but it’s not required to.
Benefits of the Program
The program offers numerous benefits. If you qualify, your original loan will be refinanced into a fixed-rate thirty-year mortgage. The interest rate is often lower than you’d receive with a conventional loan. In addition, the underwriting standards are more flexible than non-FHA loans. Finally, an FHA Secure loan can save you from foreclosure and allow you to stay in your home.
If you’re at risk for foreclosure, you owe it to yourself to check out the program and determine whether you’re likely to qualify. The first step is reviewing the FHA Secure Fact Sheet. For more articles on FHA Secure, visit: http://www.bills.com/fha-secure/