How to Get Out of a Mortgage Gracefully?
As an increasing number of Americans find they are no longer able to pay
their mortgage notes each month, how to get out of a mortgage and still
keep their homes becoming a burning question. The government has introduced several
programs specially designed to assist homeowners who are struggling to
keep their homes. While there are certainly a large number of programs
available to provide assistance to homeowners and help them avoid losing
their homes, the sheer number of programs available to provide such
assistance can be overwhelming. Would you benefit more from HAMP or is
it better to apply for HAFA? What about HARP? Below is a guide to the
largest anti-foreclosure programs offered by the government as well as
other foreclosure alternatives.
HAMP or Home Affordable Modification Program
One of the largest anti-foreclosure programs offered by the government
is HAMP. The goal of this program is to assist homeowners who took out
mortgages at high interest rates during the housing boom a few years ago
and assist them by providing loans that are more affordable. This is
accomplished through cash that is offered by the government to the
homeowner's mortgage company as a special incentive to reduce the
homeowner's monthly mortgage payment. The goal is to ensure the
homeowner's mortgage payments are no more than 31% of their gross
monthly income. The program works by having the lender drop the
homeowner's mortgage rate to around 2%. The lender must then agree to
extend the term of the loan up to 40 years, if needed, to make the
monthly mortgage payments more affordable.
Homeowners who pay in excess of 31% of their pre-taxed income for their
mortgage and who also have a loan that is served by a participating
lender can qualify for HAMP.
HARP or Home Affordable Refinance Program
The goal of this program is to assist homeowners who are currently up to
date on their mortgages, but who are not able to refinance and who wish
to benefit from the historic low interest rates available today. One of
the most common reasons many homeowners are not able to refinance even
though they are up to date on their mortgage is because they are
"underwater." This means the value of their home has decreased in light
of the current real estate market and they now owe more on their home
than it is worth. Most lenders will not agree to allow homeowners in
such situations to refinance their mortgages. Through HARP; however,
banks are required to make such allowances, provided the homeowner meets
certain qualifications and their mortgage is controlled by Freddie Mac
or Fannie Mae. The requirements for this program have been further
loosened, allowing homeowners who thought they may not have qualified in
the past to become eligible.
Forbearance through FHA for Unemployed Homeowners
Homeowners who are struggling to pay their mortgages each month because
they are unemployed may be able to receive some relief through a special
FHA forbearance program. This program provides up to twelve months of
being able to skip a portion or even all of your monthly mortgage
payment if you have a Federal Housing Administration mortgage and you
have been laid off from your job. During this time, the lender cannot
foreclose on your home.
Alternatives to Foreclosure
If you have tried government sponsored programs and you are still not
able to save your home from foreclosure, one option to consider is HAFA
or Home Affordable Foreclosure Alternatives. This plan allows you to
take advantage of a more graceful way of getting out of your mortgage.
Through this option you can leave your mortgage voluntarily instead of
waiting for the inevitable to take place. The main benefit of this
program is that the bank will not pursue a full-out foreclosure through
the court. Instead, they will accept a
short sale or a deed in lieu of
foreclosure. Through a HAFA sponsored short-sale, you obtain some time
to try to sell your home at a price that is less than the remaining
balance on the mortgage. The bank will be responsible for the
difference. In some cases, the bank may even allow you to skip a portion
or all of your mortgage payments while your home is for sale.
Through a deed in lieu of foreclosure agreement, the bank will accept
the deed to your home as full payment for the mortgage loan, even if you
are upside down on your mortgage. With either option, the lender will
also usually provide homeowners with $3,000 to assist with moving
expenses after the HAFA agreement is final. Homeowners who have
mortgages with HAMP participating lenders or whose loans or backed or
owned by Freddie Mac or Fannie Mae may qualify.
You might also consider contacting a mortgage counselor that is HUD
approved to obtain one-on-one advice completely free of charge.
Remember; however, it is always best to avoid companies that specialize
in offering mortgage rescue assistance. While these companies may be
able to assist you in
avoiding foreclosure, there is always a price tag
attached and for families who are already financially struggling, that
price may be too steep. Furthermore, there is simply no reason to pay
someone for assistance that is readily available for free.