What is the FHA Short Refinance Option?

The FHA stands for the Federal Housing Administration, and is the government’s program for providing mortgage insurance to home buyers.

The FHA Short Refinance Option is a program which was created to assist homeowners who are up to date on their mortgages but owe more on their home than the home is worth.

During the recession, home values have plunged.  Combined with skyrocketing interest rates, the result is that many homeowners are actually stuck with a larger bill to pay on their home than they owed when they first purchased it!

Many homeowners were actually closer to owning their home before they bought it.  The FHA Short Refinance Option helps these homeowners to refinance with an FHA insured mortgage at 97.75% of the home’s value.

If you’re current, but you are afraid of slipping behind, or you are suffering because your mortgage is preventing you from being able to afford food or medical bills or other necessities, then you may be able to salvage yourself with the help of the FHA Short Refinance Option.

If you are in a situation like this and you apply for the FHA Short Refinance Option, your lender may agree to lower your outstanding principle.

Once the principle is dropped, your monthly mortgage payments can be dropped in turn.  Many homeowners who have applied for the FHA Short Refinance Option have seen their monthly payments drop $500 or $1000.  Often this is enough to bring the home into an affordable range, which prevents the homeowner from losing it.

Sometimes interest rates can also be adjusted.  If you have an adjustable interest rate, you may be able to get your rate adjusted to a fixed rate which is government insured.

Ballooning interest rates are as much responsible for the housing crisis as any other factor.  These adjustable rates have enabled lenders to charge exorbitant amounts for their properties, amounts which are indeed higher than the worth of the properties in question.  Fixing that rate puts a cap on the potential price of your home.

What are the requirements for the FHA Short Refinance Option? 

1. You must owe more than your home is worth, and you must also be up to date on your mortgage payments
2. Your credit score must be 500 or above
3. The property you want to refinance has to be your primary residence
4. Your existing first lien holder must agree to write off 10% or more of your existing unpaid principle in order to create a loan-to-value ratio of 115% or less
5. The loan you want to refinance cannot be an FHA-insured loan to begin with.

If you think you might be eligible for the FHA Short Refinance Option, you should contact your lender and find out whether they agree that you are eligible and whether they would be willing to write off 10% of the principle.

If your lender consents, then you can start negotiations to reduce your monthly payments.  If at any point during the process you require further guidance, you can contact the FHA directly for more detailed information.