The FHA Secure program was introduced in late 2007 by President Bush and the Federal Housing Administration. The program was designed to help homeowners struggling with rising interest rates on adjustable rate mortgages. If you have an ARM and are in default or at risk for default, you may be eligible to refinance through the program. Although not all homeowners will be able to avoid foreclosure, many homeowners are eligible for the program.
How the FHA Secure Program Works
Rather than modify your current loan with your current lender, the program works with FHA-approved lenders to refinance ARMs into new FHA loans.
Homeowners who apply for a new loan with an FHA lender undergo a full underwriting process to determine eligibility. The lender also determines the new loan balance and interest rate. Homeowners must meet FHA lending standards, as well as other eligibility requirements in order to qualify.
Program Qualifications
Any homeowner with a non-FHA adjustable-rate mortgage can apply. This included option ARMs, hybrid ARMs, interest-only loans that have recast to the fully indexed rate, and other exotic adjustable-rate loans. You don't have to be delinquent on your current mortgage, nor do you have to wait until your loan resets to apply for a loan under the FHA Secure program.
In order to qualify, you must meet the following requirements:
- original loan was not issued under an FHA program
- mortgage payments prior to a rate reset were current
- on-time payments for the six months prior to the reset
- adequate income to meet payments under a new mortgage
- debt-to-income ratio lower than than 41%
- minimum 3% equity
- rate has reset or will reset by December 31, 2008
- remaining loan balance is lower than the local conforming limit.
As of March 6, 2008, conforming limits are geographically set. The new limits are 125% of local median home prices, with the maximum limit set at $729,750 for high-cost metropolitan areas.
If you are delinquent on your mortgage, the FHA will overlook it if the delinquency is due to payment shock following an interest rate increase. If you're delinquent for another other reason, you won't qualify for the program.
How to Apply for the FHA Secure Program
If you believe you're eligible, contact an
FHA-approved lender to apply. The FHA doesn't issue loans directly to homeowners.
Before you apply, review your loan documents to ensure that your loan doesn't carry prepayment penalties. If it does, you will either need to be able to cover the penalties or have enough equity that they can be included in your new loan balance without exceeding the loan limit or the amount you qualify for.
If you the value of your home is higher than the FHA limit, or you owe more than the current value, your current lender will have to agree to a short pay-off or issue a smaller second mortgage to cover the difference. If your lender doesn't agree to the terms, you won't be able to refinance under the FHA Secure program.
If you're facing foreclosure, the FHA Secure program can help you refinance into a new loan. Contact a local lender today to find out if you qualify.