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How To Save Your Underwater Mortgage

Updated on July 9, 2011

FHA underwater refinancing

Many people find themselves in a very bad financial situation where their home equity is lower than the mortgage debt left. This situation is called 'underwater mortgage' or Negative Equity Mortgage. Now when the national mortgage rates are low, many people are thinking to lower their mortgage rates by refinancing their mortgage.

But there is a problem... No lender would refinance a mortgage when the equity is lower than the mortgage. When this issue happens with your private mortgage it is a real problem, when it happens with a FHA mortgage, it is still a problem but it has some solution.

In this short review you could read about refinancing FHA underwater mortgages.

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FHA Underwater Mortgage Refinancing Requirements

The FHA and the HUD have some basic underwater refinancing FHA requirements, these requirements are for the borrowers and the mortgagee lenders. The idea is that both lenders and borrowers would do some effort and find a legit way to refinance an underwater mortgage.

Here are some of the FHA requirements for the lenders and borrowers:

  • Underwater mortgage - The first requirement is to have an underwater financial situation.
  • Current on Mortgage – Since the lender needs to approve some debt elimination, the borrower must be current on their mortgage for the last 12 month.
  • Live in the property - The FHA program is designed to help homeowners only!
  • Regular Home Loans – The program is not for FHA home mortgages, but for private mortgages only.
  • Meet FHA Requirements – The borrower must meet the FHA requirements as if they are applying for a FHA mortgage.
  • Front End Debt To Income Ratio – The borrower must have a front end debt-to-income ratio of 31%
  • Back End Debt to Income Ratio - A back end debt-to-income ratio of 50%.

This is what the borrower must do and have in order to be able to join the underwater refinancing program.

Here are the requirements for the lenders.

  • Lien Holder Write Off 10% - The existing first lien holder must write off at least 10 percent of the unpaid principal balance.
  • Loan to Value of 97.75% – The for the FHA insured loan must not exceed the 97.75 percent.
  • All Mortgages Will Not Exceed LTV of 115% – All mortgages on the house must all have the maximum of 115% of loan to value.

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