What is a short pay refinance?
Short of selling your home for less than the balance remaining on the principal of your mortgage and foreclosure, what can a home owner do in this housing recession that began more than a year ago? For those who simply do not have the monthly income to handle the current adjusted mortgage rate monthly payments, refinancing has become a nightmare. Or has it? Short Pay Refinance has become a viable option through an FHA loan program. By short selling your home to your existing lender, you can refinance with another lending institution for a monthly payment on a lower principal that you can handle and thereby keep your home.
How Does Short Pay Refinance Work?
In today’s housing market, many homes have flipped in value, meaning that the current value of your home is less than the balance on your mortgage. Traditionally, selling your home becomes nigh impossible at this point with foreclosure imminent. However, the FHA short pay refinance program is designed to allow you to keep your home. The equity on your home is put back right side up, the principal is discounted, and your monthly payments are lowered.
This is how it works. Your remaining mortgage principal is higher than the current value of your house which means that you are short. A broker or new lending institution then has the current market value of your house assessed and runs it through FHA for approval. Once approved, the broker or new lending institution goes back to the servicer on your mortgage loan and negotiates a discount based on the current market value of your home. With the FHA loan in place, you now have a discounted mortgage principal and lower monthly mortgage payments with new terms.
Do I Qualify for Short Pay Refinance?
There are 4 basic criteria you must fulfill to qualify for a Short Pay Refinance:
- You must be current with your existing mortgage
- You need to have a decent credit rating
- You must be able to indicate a sufficient income
- You must have an acceptable FICO score
Short Pay Refinancing is most appropriate for the home owner who still has a chance to salvage their credit standing and keep their home before bankruptcy, foreclosure, and selling your home way below worth become necessary.
Is Short Pay Refinancing Better than Short Selling My House?
Short Selling your house may give you instant relief, avoid the embarrassment of foreclosure, and preserve some decent credit rating, however, you will no longer have a roof over your head and you will lose thousands of dollars as a result. Short selling is profitable when you sell high and buy back low. Unfortunately in this circumstance, you bought high and someone else is getting your valuable property for a very low price.
In a Short Sale, your mortgage holder or lender would have to agree to receive less money than the actual amount due. This is unlikely to happen if the cash flow would be greater with a foreclosure than a Short Sale. Before any of this even becomes an issue, you and your property must qualify for short selling to be a viable option.
Is Short Pay Refinancing Better than a Loan Modification?
When seeking options to preserve your financial credit, your reputation, and your home, all avenues are worthy of being investigated. It is important to seek legal counsel that is qualified and experience in real estate issues to determine which option will give you the greatest relief. You may find that a Loan Modification is not even possible for you because your loan servicer is not a lender, therefore cannot qualify to be a servicer for Loan Modifications.
Short Pay Refinancing gives the borrower greater ability to recover financially because not only has the monthly payment been lowered to make it manageable, but the principal has also been lowered as a result of the FHA insured loan. The most important consideration to make is that you fully research the benefits and risks of each program and choose the one with the greatest demonstrated success.
