It is possible to refinance a Fannie Mae mortgage to get a lower mortgage interest rate even if your home is “underwater.”
There is a program designed to help certain homeowners, whose home mortgage amount exceeds their home value refinance. It’s called the Desktop Underwriter (DU) Refi Plus Program. This program, which is part of President Obama’s “Making Home Affordable” effort, is designed to help Americans whose mortgage exceeds the amount of equity in their home.
In such a situation the home is considered underwater. Individuals whose homes are underwater would not be able to pay off their mortgage by selling their home. The DU Refi Plus program has recently been expanded to help individuals who are deeper underwater.
The idea behind this program is to give individuals a smaller mortgage that reflects the true value of their home. This mortgage refinance will be easier to pay off and should help those people avoid foreclosure.
There are some drawbacks to this program because it is only available to certain individuals that have certain kinds of mortgages. Those who can qualify for this program should certainly try to sign up for it because it can reduce their mortgage burden.
How to Determine if You Can Qualify for DU Refi Plus
The qualifications for DU Refi Plus are pretty specific. You must meet all of these criteria in order to participate in the program:
- You must have a mortgage that is owned or guaranteed by Fannie Mae. If you don’t have a Fannie Mae mortgage you are out of luck. Check your mortgage documentation it should say whether your mortgage was issued by Fannie Mae.
- The mortgage had to be issued before March 2009.
- Fannie Mae will usually require proof of income such as a current pay stub from an owner of the property. Fannie Mae no longer requires couples that own a home together to both provide proof of income. Individuals may be able to use other documents such as bank statements as proof of income.
- You can not have a record of being more than 30 days behind on a mortgage payment in the past year.
- You must have a traditional mortgage. ARMs (adjustable rate mortgages), interest only mortgages, balloon mortgages and other unusual mortgages will disqualify you for DU ReFi Plus.
- If you have taken out any sort of second mortgage, home loan or line of credit backed by your home equity you would probably not qualify for DU ReFi Plus.
You Will Probably Need a Professional
It would be best to go through a mortgage broker that specializes in Fannie Mae mortgages if you want to take advantage of DU ReFi Plus. Such a professional should be able to tell you if you qualify.
A big reason why you should go through a professional is that they should be able to structure DU ReFi Plus as a “no cost” mortgage. That means you won’t have to pay any additional fees or costs for it.
A big savings in this program is that Fannie Mae is no longer requiring appraisals on most homes for DU ReFi Plus. This can significantly reduce costs and time involved in the process.
Even if you go through a professional it should take between 35 and 40 days to get the mortgage refinance approved. This means that individuals who think they are underwater and facing foreclosure should apply as soon as they can.
DU ReFi Plus Application
To get your mortgage refinanced through DU ReFI Plus you will need to fill out another mortgage application. This will be reviewed by Fannie Mae which can turn it down.
You should be aware that Fannie Mae will pull your credit report and review it when you apply for this refinancing. Persons with bad credit or histories of nonpayment of debts could be turned down for DU ReFi Plus.
It might be a good idea to review your credit history with your mortgage professional before submitting the application. In some cases an online mortgage pro can get mortgages refinanced for persons with bad credit.
Even if you don’t qualify for DU ReFi Plus you should definitely talk to a mortgage professional if you are underwater. There are a variety of programs available for persons who are having trouble meeting their mortgage payments. A number of these programs do target individuals whose mortgages exceed the value of their home.
What You Need to Know
Two concepts that everybody who has a home mortgage should be aware of are LTV and equity. You need to have a good understanding of these concepts if you want to take advantage of program like DU ReFi Plus.
Loan to Value (LTV) What is It?
When you go for a DU Refi Plus, the mortgage pro may ask you about Loan to Value or LTV. This is the difference between the value of your house and the amount loaned against it. It’s basically another term for equity.
To determine if you qualify for DU Refi Plus you will have to determine your home’s LTV. Fannie Mae recently changed the DU Refi Plus standards so that homes with an LTV of up to 125% can qualify. This means that a person whose mortgage amount was 110% of their home’s value could qualify for DU Refi Plus.
Home Equity and Mortgages
Equity is the amount by which the value of a home exceeds the mortgage. Historically banks have allowed individuals to borrow against this money. People with a lot of equity were able to reduce the amount owed on their mortgage and interest rates through refinancing.
The fall in housing values has left many people “underwater” that means the amount they owe on their home exceeds its value. Efforts like DU Refi Plus are designed to help those people refinance their homes and give them a mortgage that they can pay.