Mortgage Definition: FHA Short Refinance

Today’s Mortgage Definition is: FHA Short Refinance

FHA Short Refinance – A Simple Definition:
Recently, FHA (officially) announced that they are allowing FHA lenders to help borrowers who have negative equity in their home get a new FHA loan when the existing lender agrees to a short payoff. This is known as an FHA short refinance. Just a few requirements for people to be eligible for the FHA short refinance program include:

• There must be negative equity
• You must be current on your mortgage payments on the mortgage being refinanced
• You must live in the home as your primary residence
• Your current mortgage being refinanced may not be an FHA loan
• Your current lender must write off at least 10% of the principal balance
• The new maximum LTV is 97.75% for the new loan.

FHA Short Refinance – An Expanded Definition:
The FHA short refinance is not something that is new – in fact, many loan officers have figured them out, tried them and simply gave up trying to help people get them done because it was so difficult to get a lender to agree to accept a short payoff.

In my opinion, the key to having a successful FHA short refinance is going to be to get your existing lender to agree to accept a short payoff. If you get your lender to agree to a short payoff, one other thing to remember is that when you participate in the FHA short refinance program, it could possibly show as a derogatory item on your credit score as well as have tax implications. You will want to contact your tax advisor and be informed of possible credit score impacts that the FHA short refinance program could trigger.

With all of the “ifs” that the FHA short refinance program has circling it (still), I think it is something that many people across the country could benefit from. IF you can get your current lender to agree to a short payoff and IF you are aware and ready for any tax consequences and IF you qualify for the program… well, then the FHA short refinance program is a great solution.

But don’t expect it to be a short process.

Additional Resources
FHA Short Refinance HUD Announcement
FHA Short Refinance Mortgagee Letter
Previously: FHA Short Refinance: Does This Make It Real?