Many people are confused over the terms short refinance and short sale. To do a short refinance refers to the negotiation process with your bad credit mortgage loan lenders to reduce the amount owed such that you qualify for a house mortgage refinance with a new lender. This is different from a mortgage loan modification where you continue your relationship with the current lenders after negotiating on a new set of loan terms and conditions. A short refinance uses the money borrowed from a refinance mortgage broker to pay off your previous lenders. This is because you are not allowed to do a normal refinance online when the money owed on your house is more than its current valuation.

A short sale refers to the process where a homeowner is forced to sell away his or her house because the mortgage loan is currently higher than the valuation on the house. A short refinance is intended for the homeowner to continue owning and staying in the house, which is why more funding such as the $300 billion HOPE for Homeowners (H4H) Program are available.

The success or failure with short refinancing almost depends entirely on your current home loan lender, and are typically considered based on the amount required to be forgiven and your installment payment patterns so far. For example, if you have been often late in your payment, you will be labeled as a poor credit borrower with high risk of defaulting. In that case, your mortgage company may decide to cut their losses and approve your short refinance as long as the shortfall is not too significant.

You do not have to be late on your mortgage installments or already in foreclosure to apply for a short refinance with the bad credit mortgage companies, although most homeowners that have been approved are usually so as explained above. Many lenders are having a problem dealing with many non performing loans under their management and they are becoming more aggressive in cutting their losses.

Bad credit mortgage lenders are usually willing to consider short refinancing because of the high costs (around $100,000) involved with foreclosure, which is essentially a lose-lose deal for both parties. A short sale on your property is not attractive in these times as well, which is based on the best offer currently on the market today. That is why it is possible to get a short refinance even if you are current on your mortgage payments, as long as a win-win situation can be reached for both homeowners and lenders. That means the loan amount to be forgiven should be lesser than the cost of foreclosure to the lenders.

Foreclosure Mortgage Refinance

Recently, loan modification is another option for home owners facing pending foreclosure. Under normal circumstances, it is preferably to try a short refinance first prior to settling for a loan modification. The reason is simple; a short refinance reduces the amount owed to the current valuation on the property, while loan modification only changes the loan tenure and installment amount. If the new refinance home mortgage interest rate and installment amount can be afforded by the home owner, they do not have to do a loan modification.

Either way, both are intended to help homeowners to save their houses from foreclosure. Previously, when homeowners realize that the value of home is less than what they owed, many chose to give up their houses which create a lot of problems for the bad credit mortgage companies.

Short refinance is a financial tool specifically designed to help house owners with adjustable rate mortgages. They may or may not be having problems paying their mortgages. However, an adjustable rate mortgage often leads to the situation where the amount owed on the mortgage has become larger than the value of the property. When that happens, these people cannot do a normal house refinance online to take advantage of lower interest rates. They may not have bad credit, but it does not matter here as they will be rejected unless they can get a short refinance.

How To Do A FHA Short Refinancing

Now, we touch on how to do a short refinance. Firstly, you will need to contact your bad credit mortgage loan lenders and ask them for the complete application package. You will need to provide information on your personal financial statement, most recent bank account statements, and a financial hardship letter explaining why you need the short refinancing to be approved.

Once you have completed the above, you can look for a Correspondent Mortgage Lender that has been pre approved by the Federal Housing Administration to help you apply for the FHA Short Refinancing program to help homeowners who are facing difficulties with their mortgage payments. Even if you have missed paying your mortgage installments, you can still apply as long as you can justify that it is due to financial hardships. This short refinance will modify your current mortgage into a new FHA 30 year fixed rate mortgage for up to 97.75% of the current valuation on your home property.

Next, your bad credit mortgage loan lenders will call for a BPO (Brokers Price Opinion) where a real estate broker will do an appraisal on the current market value of your house and then give you a quote on the new amount owed and the shortfall that will be forgiven. As you can see, that is about all there is on how to do a short refinance to avoid losing your house