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Obama’s Hope for Homeowners Program was designed to keep families from losing their homes due to foreclosure. The program began on October 1, 2008 and will run until September 30, 2011. Traditional methods for preventing foreclosure include refinancing the principal of the mortgage, modifying the original mortgage, and forbearance. All of these are still viable options, however, now the Hope for Homeowners Program will also give mortgagees another option.
How does it work?
Obama’s Hope for Homeowners Program allows the lender to write the mortgage to a maximum of 90% of the home’s value, which was previously determined by an appraisal. The FHA would then appraise the home again and the government would refinance the loan into an insured 30 year fixed rate mortgage with the FHA. The previous lender agrees that you do not owe any remaining debt and all penalties for prepayment as well as any late fees are waived. The benefits of the Hope for Homeowners program are clear. The homeowner will receive lower monthly payments and a fixed mortgage rate. Additionally, the homeowner immediately has ten percent equity in their home even if prior to the refinance they had none.
Who is qualified?
Unfortunately, not every homeowner qualifies for Obama’s Hope for Homeowners. The qualifications homeowners must meet include:
- Previous mortgage payments may not have been defaulted on purposefully. However, if the mortgage is currently in default despite your best efforts to make payments you may still be able to qualify.
- The mortgage must have been obtained prior to January 1, 2008.
- The mortgage payments must be equal to at least 31% of your income and you must not be able to afford them. Even if you are currently making your payments you can still qualify.
- The mortgagee must not have a second home and the mortgage must not be on an investment property.
- The original loan could not have been acquired through fraudulent means and the mortgagee must not have been convicted of fraud in the previous ten years.
Are there drawbacks?
- You may not take out a second mortgage on the home for the first five years of the loan unless it is for home maintenance purposes.
- You must continue to pay 1.5% of the annual premium.
- You must pay 3% of the mortgage insurance premium upfront. If the lender is willing to reduce the amount of the mortgage below 90% you can finance this upfront amount.
- You must pay closing costs. Again, if the lender is willing to reduce the amount of the mortgage below 90% you may be able to finance these costs.
- All appreciation and equity the house builds must be shared with the government. This means that if the house gains value, you will have to share any profit with the government. The amount the federal government receives decreases over the first five years. The first year the government would receive 100% of the profits and by year five, and all subsequent years, the government would receive 50% of the profits from the sale of the house.
How do I get started?
You can contact the company that currently holds your mortgage or a counseling agency approved by the FHA.