Refinance to stop foreclosure is a foreclosure defense strategy that works for borrowers that have sufficient steady income to make their new payment and have a temporary financial hardship. Otherwise, you may end up in a situation in six months where you still don't have enough income and you default on your new mortgage. To obtain a traditional refinance, you must have equity in your home. Refinancing allows you to pay off your existing mortgage and obtain a new mortgage at a lower interest rate and more favorable terms so you can afford your monthly mortgage payment. For many homeowners, a refinance to stop foreclosure may be the perfect solution. Refinancing makes the most sense if you have a variable interest rate mortgage. By refinancing into a fixed rate mortgage with at least a 2% lower interest rate, you can save enough money on your monthly payment to make refinancing worthwhile for you.
Even if you don’t qualify for a traditional refinance because you don’t have enough equity in your home, you may still be able to obtain a refinance under the government’s HARP foreclosure prevention program. In order to qualify for HARP, you must meet the following guidelines:
- Be current on your mortgage payment
- The home must be owner occupied and your primary residence
- Your loan to value ratio must not exceed 125%.
In fact, a large number of borrowers have taken advantage of the government HARP program to save their homes from foreclosure. The program expires in June of 2011.
Refinance Costs
There are costs involved with refinancing so you should make sure that the benefits outweigh the costs. Costs can total anywhere from 3% to 6 % of your principal. Typical refinance costs include:
- Application fee
- Appraisal fee
- Inspection fee
- Points
- Closing fee for attorney review
- Title insurance and title search
- Homeowner insurance
- Prepayment penalties on an existing mortgage
- Survey fee
You may be able to obtain a no cost refinance. This is when the lender pays the fees, but charges you a higher interest rate or rolls the fees into the loan.
Who Should Not Refinance?
If you don't have a steady income or you are unemployed and cannot afford to make the new mortgage payment, then you will not qualify for a refinance to avoid foreclosure. You may need to sell your home. If you don't have equity and owe more on your mortgage than you can sell your home for, you may want to look into a short sale or deed in lieu of foreclosure.
Get Advice from a Foreclosure Defense Attorney
It is always a good idea to get professional advice from a real estate foreclosure attorney to find out whether refinancing to avoid foreclosure is the best option for your financial situation. The attorney is knowledgeable about other foreclosure prevention options that are available to you as well. An attorney can help you negotiate a refinance with your lender or other solutions to prevent foreclosure.
