Refinancing your mortgage, while having bad credit, is very unrealistic. This situation is derived when the loaner’s mortgage balance exceeds his property value, or when the loaner has had mishaps and late mortgage payments.

As we well know, most lenders will require equity in order to refinance, nor will they be generous with good rates and terms for mortgage owners that have bad credit history.
Should we then give up and try to work our way through the current mortgage terms, possibly losing our house ?

The answer is no. The Government plan – making home affordable program – may assist us in 2 possible ways, which will be described in the following article.

HARP

The federal Home Affordable Refinance Program, or HARP, allows qualified borrowers to perform mortgage refinance for a loan that is 105-125% of a home’s value.
This program is eligible to the following:

• The loaner owns a 1-4 unit home that is your primary residence;
• The Loaner has a mortgage owned or guaranteed by Fannie Mae or Freddie Mac
• The loaner is “current” on his mortgage payments and have not been more than 30 days late making a payment within the past 12 months
• The loaner has sufficient income to support the new mortgage payments in such a way that he will not miss payments.
• Refinancing will actually improve the long-term affordability or stability of the loan.

HAMP

HAMP, or the Home Affordable Modification Program is designed not only have an “underwater mortgage” but also for loaners that have a less than perfect payments history.

To qualify, you must demonstrate financial hardship showing that you are in real peril of losing your property. Although it does not say so specifically in the HAMP website, it is easier to apply when the mortgage is owned or by firms that have signed up with the U.S. Treasury to qualify for HAMP. (Fannie Mae, Freddie Mac goes without saying…)

The program provides government incentives of up to $1,500 to lenders to allow refinance equivalent modifications to the loaner’s mortgage, but the ultimate approval of the process still rests with the lender.

To qualify for HAMP, the loaner must:

• Own a 1-4 unit home that is your primary residence
• Have received his mortgage on or before January 1, 2009;
• Show burdening mortgage payments: have a mortgage payment (including taxes, insurance, and homeowners association dues) that is more than 31% of his gross (pre-tax) monthly income
• Owe an amount that is less than or equal to $729,750 on your first mortgage for a 1 unit property (2-4 units properties have higher limits).

Homeowners who will qualify will have to complete a trial period of 3-4 months in order to demonstrate that they will be able to pay the new and reduced monthly payments without mishaps or late payments, before their mortgage will be eligible for permanent modification. Under this program, the Lender will be able to lower the interest rate to as low as 2%, as well as extend the term up to 40 years, or forbear payments on your principal.