Many homeowners with FHA mortgages are experiencing hardships and getting approved for an FHA loan modification can be a wise financial move if qualifying for refinance loan has already been ruled out. 2010 FHA loan guidelines have tightened; so many borrowers simply don’t meet the requirements for a FHA loan qualification along the traditional refinance route. Fortunately, many FHA lenders are extending FHA mortgage relief with loan work-outs, forbearances and FHA modification options. Like a mortgage refinance, the goal of a FHA loan modification is to save money with a lower monthly payment. In order to lower the monthly payments, lenders are lowering the FHA rates or extending the terms. In some regions in where home values have plummeted, borrowers have been successful achieving a principal reduction. Getting a FHA loan modification approved is much more common than a principal reduction, so don’t hold your breath for your FHA loan company to lower your mortgage balance even if you home loan is underwater.
Qualifying for a FHA Loan Modification
As you may already know, qualifying for a FHA modification plan is different than a FHA refinance qualification. FHA refinance guidelines allow borrowers to qualify for a rate an term refinance with a debt to income ratio up to 45% in most cases. (Max DTI ranges 36% – 45% for FHA refinancing) Whereas the debt-to-income ratio on a FHA loan modification seems to be between 70 and 100%. Some lenders will lower the payment automatically to a 38% debt to income ratio, so for some borrowers their mortgage payment is reduced significantly.
FHA Refinance Guidelines Limit LTV to 96.5%
The loan to value requirements are much different as well. FHA refinance guidelines enable borrowers to refinance up to 85% on cash out loans and 96.5% on rate and term refinancing. The FHA loan modification agreements seem to be extended to borrowers who are underwater with loan to value levels that exceed 100%. (ie. borrowers owes $350,000 on mortgage but home is valued at $300,000).
The other important underwriting issue with FHA home refinancing is payment history. FHA refinance guidelines typically require no late payments on the mortgage for the last 12 months. However, on a case by case basis, underwriters may approve a borrower for FHA refinancing with one 30-day late payment if they have compensating factors. The FHA loan modification is usually approved to borrowers who are 30-days late or more. It’s tricky because if you asked the lenders if being late on the mortgage was required for a FHA modification approval they would say “No.” However, we see a pattern of FHA loan modification agreements being extended to distressed borrowers who are behind on their mortgage payments.
Both refinance and loan modification solutions continue to help millions of borrowers across the country achieve FHA mortgage relief. If you are experiencing some financial hardships that are making it difficult for you to afford your mortgage payment, it is strongly recommended that you seeking financial consultation and move forward with one of these loan relief solutions.
