When the U.S. real estate market plummeted, I joined the legion of homeowners who suddenly found herself in such deep debt based on the drop in the value of my home that I liked to tell friends that I kept scuba gear in the car so my "underwater" home was navigable. My journey to find financing took almost a year to accomplish and the amount of paperwork I generated with each application was impressive, but I'm delighted to say that I found help after nearly giving up.
Exploring a HARP. I began my odyssey by asking my lender if I could apply to the Home Affordable Refinance Program (HARP). This government-backed initiative offers financial respite covering up to 125 percent of a home's value. Since HARPs were conceived for people who are both underwater and gainfully employed, I was turned down because I didn't make the salary cut. If you explore this avenue, keep your expectations in check. Not every lender approves re-fis via the HARP program if there's anything untoward about credit or if a salary doesn't meet exacting guidelines.
Moving On to HAMP. I went back to the drawing board after months of waiting for and being denied a HARP, but this time, I pursued a Home Affordable Modification Program (HAMP) mortgage. According to "Forbes" financial writer Gerri Detweiler, HAMP was conceived to help folks skittering on the edge of foreclosure as a direct result of extreme equity drops. The key word here is "modification" rather than refinancing. A lender could conceivably modify the value of your home if you meet stringent guidelines. Even if your credit score isn't perfect, as long as you meet HAMP salary parameters, it's worth applying. I was rejected, but that didn't stop me from moving ahead.
Perhaps, the FHA? According to Bills.com, even if you have no equity in your home, updated Federal Home Administration (FHA) loans are being given to folks whose equity has plummeted, but I quickly learned that folks successfully running the FHA gauntlet are not as far underwater as most. The FHA is willing, on paper, to underwrite a new mortgage covering 96.5 percent of a home's value. There's even a FHA Short Refinance Program: A lender has the power to reduce a home's principle by at least 10 percent to reset the value, at which point, a new mortgage kicks in. I'd have to come up with 3.5 percent on my own to meet loan-to-value requirements. That was a deal breaker. I never bothered applying.
Another Road Not Traveled: Plus Programs. Since Fannie Mae backs my mortgage, I decided to go directly to the horse's mouth to check out the agency's Re-fi Plus program. I figured this might be my solution since Plus program products cover 125 percent of a loan's value, though a Bills.com survey of Plus re-fi plans shows that lenders more likely cap an offer at 105 percent. I read about an applicant with zero equity and a FICO below 580 being approved for Re-fi Plus and for a family with only one salary, this could be a lifesaver. For several reasons, this proved another false start for me, but I next turned to Housing and Urban Development (HUD) where I found help via a program nobody, including me, had ever heard of …
Hardest Hit Fund. Having already applied and been turned down by most re-fi programs for one reason or another, I explored the Illinois Hardest Hit Fund, a program originating with the federal government. After identifying the hardest hit states following the 2008 real estate market crash, 18 states plus Washington D.C. were named as most in need of exceptional financial assistance and funds were divided among them. With the help of my counselor, I met the unique qualifications required to obtain this help and I'm happy to report that while I'm still in shock - albeit a happy kind of shock -- my re-fi dilemma was resolved when I received a grant that saved my home and my sanity!
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- Real Estate