My Bad Credit Mortgage Rate Is Going Up! What Can I Do?

By Gina Pogol
Mortgage Credit Problems Columnist

Erika Asks: Dear Gina, I got a home loan for people with bad credit about three years ago. The idea was that I would refinance to a better mortgage when the three-year prepayment penalty expired. Well, my credit is better, but my rate is adjusting and I can't refinance because my home is worth less than my mortgage balance. Help!

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Gina Says:

Dear Erika,

Don't ruin your good credit if you can avoid it. First, contact your current lender about doing a streamline refinance to a better interest rate. Your lender may be willing to drop your rate because lowering your mortgage payment makes it less likely that you'll default. In addition, if you truly owe more than your home is worth, the lender should be motivated to avoid foreclosing on you.

Your other option may be to apply for a Home Affordable Modification Program (HAMP). If your mortgage payment, including principal, interest, taxes, insurance, and homeowner association (HOA) dues, is greater than 31% of your gross monthly income, you may qualify to have your interest rate lowered. The HAMP questionnaire on the Making Home Affordable site can tell you if you may be eligible. Understand that bad credit lenders, unlike Fannie Mae and Freddie Mac lenders, are not required to make mortgage modifications through HAMP.

You can also try HOPE NOW. It's an alliance of mortgage lenders, counselors, and other industry pros and it's designed to get assistance more directly to borrowers. The HOPE NOW LoanPort can connect you with a housing counselor or you can apply directly for a loan modification from your lender. There is a list of participating mortgage lenders on the HOPE NOW site; if yours is one of them you may be able to get a private or HAMP loan modification by submitting your information through the site.

Not to be confused with HOPE NOW is FHA's Hope for Homeowners (H4H) program. The program requires that your current lender accept the proceeds of a new FHA loan as payment in full and release its lien against your property. You then have a new FHA loan that won't exceed 96.5% of your home's current value.

A new program that operates in a similar manner is the FHA short refinance, which begins September 7th. You can get one of these refinances from any FHA-approved lender. To be eligible for the new loan, you must be underwater but still current on your mortgage. Your credit score must be 500 or better and the new refinanced loan can't exceed 97.75% of your home's value.

So don't give up! Chances are good that one of these programs can get you a better deal on your mortgage, and help you continue to improve your bad credit.


http://www.housingwire.com / http://www.hopeloanportal.org/

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