The Differences Between Home Loan Modification and FHA Loan Refinance

By January 22, 2013
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The number of American homeowners struggling to meet their monthly payments as a result of the current recession is massively increasing. If you are one of these homeowners under huge amounts of stress as a result of such financial difficulties, this article will help you to figure out what you can do to ensure your mortgage is covered. It will provide you with the appropriate knowledge about both home loan modification and FHA refinance.

127022578Two options available to borrowers who are struggling with monthly repayments above what they can realistically afford are FHA refinance and home loan modification. Deciding which of these might suit your situation will largely depend on which insurer backs your loan. The way to find out is to ask your creditor. The main three insurers backing these types of loans are Freddie Mac, Fannie Mae and the Federal Housing Administration (FHA). These three institutions have been authorised by Congress to offer full home loan coverage, in turn exposing lenders to less bad debt and ensuring the lender gets competitive rates.

FHA loans and loans insured by Freddie Mac or Fannie Mac are not hugely different. However, the insurer covering your loan does factor in the options available to your when it comes to restructuring your repayments to make them more affordable. President Barack Obama’s is currently running a Making Home Affordable mortgage loan modification program and this scheme works alongside loans that are covered by Freddie Mac or Fannie Mae. For those in receipt of FHA covered loans, there is the Hope for Homeowners plan, which allows refinancing of such a loan to maximise its affordability.

‘Refinance’ sometimes immediately sounds alarm bells for some people as many have previously been told that they are ineligible for refinancing. However, a great number of these people who were informed that they do not qualify for such refinancing previously are not finding themselves eligible under the Hope for Homeowners scheme. Such disqualification in the first place was owed to the current climate and subsequent drop in house prices. Once property values dropped below 20% of equity, refinancing in its traditional sense was no longer an option.

The making Home Affordable plan incorporates a means of loan modification to reduce the monthly repayment a borrow makes. Incentives associated with the plan include payments to both borrowers and lenders to encourage the acceptance of more such applications and simultaneously promoting stability in the economy. For those loans insured by the FHA, the Making Home Affordable scheme is not an option. However, loan modification is available through other means and, in fact, loans backed by the FHA are modifiable with fewer restrictions.