FHA Short Refinance Program with Negative Equity

FHA Short Refinance Program with Negative EquityThis program was designed by the Obama Administration to assist homeowners who are “underwater” and owe more on their homes than the property is worth.

Surprisingly, this program is not designed for homeowners that have an FHA mortgage backed loan. So, if you currently have an FHA loan, you will not be invited to participate in this program.  Any homeowner/borrower that refinances into this program must meet traditional underwriting guidelines which are usually less stringent guidelines a compared to conventional.

To be eligible for the FHA Short Refinance Program you must meet the following conditions:

    • You must be current on your monthly mortgage payments.
    • Your home’s value is less than what you currently owe.
    • Your combined (first and second mortgage) outstanding balance cannot be greater than 115% of the current fair market value.  The second lienholder must agree to the refinance and both must be willing to reduce the loan balance. The first lienholder must reduce the loan by 10%.
    • You must have a credit score of at least 500.
    • You must reside and occupy your home.
    • Your debt must not exceed 55% of your monthly gross income (GMI).

As always, all FHA loans require mortgage insurance (MI) in which current rates are set at .55% annual rate (calculated over 12 months).  Be sure to check with your lender for up-to-date mortgage insurance rates as it tends to change often.

FHA Short Refinance Program with Negative Equity (2)

This program cannot be used on an investment property or second homes.

Although the FHA Short Refinance Program was implemented by the Obama Administration, does not necessarily mean that your lender will participate.  If your loan was sold as a mortgage backed security (MBS), then your lender/servicer will decide based on instructions from the investors of the MBS.

For more information on this program,  please click here FHA Short Refinance with Negative Equity


  1. Leland Crimmins

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