The average FHA mortgage rate for a thirty-year home loan dropped below 5% this week.  Mortgage Brokers Network executive, Steve Park said, “This is a rare opportunity to revive the mortgage industry because interest rates have dropped to record levels that have not been available for the last forty years.”  Homeowners across the country realize this rare financing opportunity, so thousands of borrowers are rushing to lock into this monumental era that could spur a much needed home refinancing boom. 

Today, the biggest obstacle for most borrowers is credit.  In many cases, conventional lenders have credit score requirements seeking credit scores over 680.  In this dried up credit markets, even professionals like doctors or lawyers have found it difficult to qualify for a traditional mortgage. If you’re interested in a refinancing mortgage, it is imperative that you have good or excellent credit and the ability to be able to provide documentation for income that lending underwriters deem sufficient. 

FHA still offer a refinancing opportunity for borrowers with good or bad credit can qualify for a FHA home loan that is fixed for thirty years.  The most popular FHA loan allowing refinancing is the FHA mortgage that requires borrowers to be at 97% loan to value for the standard FHA rate and term refinancing and 95% cash out refinancing would require home owners to have at least 5% left in your home equity.  However in some cases the FHA lender will require two appraisals for cash out refinancing above 85% loan to value. 

If you have no equity available because of the declining home value, consider the Hope for Homeowners program insured by FHA.  This unique program enables homeowners who have mortgage balances greater than the appraised amount.  If you are unable to qualify for Hope for Homeowners, consider a loan modification, because credit scores and late payments will not prevent you from renegotiating your mortgage rate.

In a recent article from the Originator Times, they discussed some of the details of John McCain’s mortgage plan proposed to help stop foreclosure with FHA home loan assistance from the government. The new loan would be called the FHA 203S loan and there would be no statutory cap so every homeowner is eligible if the home is owner occupied, regardless of loan amount. The Loan-to-Value however would be capped with a max of 100% of the present appraised value for the property. 

With this FHA loan option there would be no credit check to qualify, but the homeowner would need to provide income documentation proving they could afford the revised monthly mortgage payments within the existing FHA home loan guidelines; The homeowners would have the ability to buy down the FHA mortgage rate in an effort to increase the possible number of applicants that could qualify;

Homeowners refinancing with this program would have to agree not to sell their home for at least five years; and the difference between their current mortgage balance, plus any costs of obtaining the FHA 203S mortgage and the current appraised value of the house would be lent to the homeowner by the U.S. Treasury at a nominal interest rate as a 2nd mortgage with no loan payments due.  The Treasury would place a tax lien on the property for principal and interest that must be paid back to the U.S. Treasury when the home is sold or refinanced in the future.

Messina says his plan is a better deal for taxpayers and has bigger rewards for the mortgage industry.“FHA 203S loans made by the Treasury would be paid back eventually since the Treasury would be holding a tax lien on the property.  The final price tag would only be the sum of the deficit amounts lent by the Treasury.  Assuming that property values fell by 20%, the total cost would only be $140 billion.  Taxpayers would get a return in the form of interest once the tax lien is paid off,” explained Messina. 

He added: “In addition, mortgage brokers and lenders could see a significant refinance boom like they did in 2003 because close to a trillion dollars in business would be created by giving those one in six homeowners whose under-water home mortgages as a viable option to refinance.”