Now That Home Affordable is in Action, a Few Tips

As more details emerge about President Obama’s Home Affordable Refinance plan - which was started to help more homeowners refinance into loans with lower monthly costs - we’re finding many people still have questions about how it’s supposed to work, so we wanted to provide you with some more tips. We went right to the experts: three of our friends in the mortgage industry, Justin McHood, John Paunan and Dan Green (who has some of his own tips for refinancing).

Over the last few weeks, we’ve delved into who should qualify for the Home Affordable plan and updated Zillow users on when and how the plan should work. And just last Friday, a reader named Stan commented in the original Home Affordable refinance blog post, saying he got approved for a refi under the plan.

But for those of you who still aren’t sure how to proceed, read on.

One of the best pieces of advice we heard so far was to think of the Home Affordable Refinance program as  a typical refinance, but with new loan-to-value parameters (homeowners who owe between 80% and 105% of their home’s value qualify).

There may still be appraisal and fee requirements, but they could vary based upon the individual lender. And, yes, refinancing is a long, drawn-out process; the borrower needs to be patient.  While this program is not a quick ‘n easy fix for all, it may help those who have been unable to do a traditional refinance, would like to get a lower rate on their mortgage or would like to refinance out of that adjustable-rate mortgage.

Steps and Tips

1. Check to see if your current mortgage is owned by Freddie Mac or Fannie Mae (if not, you’ll have to pursue a traditional refinance):

a. Fannie Mae’s lookup tool

b. Freddie Mac’s lookup tool

2. If you do have a Fannie Mae or Freddie Mac loan, start gathering the required documents:

a. Most recent pay stub

b. Most recent bank statement

c. Two years’ worth of W-2s and tax returns

d. Most recent mortgage coupon/stub

e. Information about any second mortgage you may have on your home

f. Account balances and minimum monthly payments due on all of your credit cards

g. Account balances and monthly payments on all your other debts such as student loans and car loans

Some lenders may ask for more documentation, but this is a basic list to get started.

3. According to the public relations director at Freddie Mac, if your loan is held by Freddie Mac, you will only be able to refinance through your current servicer or an affiliate. Your servicer is responsible for collecting your monthly loan payments and crediting your account. A servicer also handles your escrow account, if you have one. To find out who your servicer is, look at your most recent mortgage coupon/stub. Call your servicer to find out if they are part in the Home Affordable Refinance program.

4. If your loan is held by Fannie Mae, you have a choice: you can go to your servicer, or shop around for the best rate and find a broker or loan officer that can meet your needs. It’s important to shop around because some lenders may require a minimum credit score while others don’t, and the fees will vary from lender to lender.

5. For loans held by Fannie Mae you can use Zillow Mortgage Marketplace to get immediate, anonymous quotes from thousands of mortgage professionals.

6. Once you find a lender you like and trust, be prepared to sit tight and wait it out. Since the program is brand new, it could take some time for lenders to run at full efficiency.

Red Flags

During your search for a lender, here are a couple of red flags  to be aware of:

1. Beware of mail and e-mail solicitations. If it seems too good to be true, it probably is. In fact, anytime you get a direct mail piece or a telemarketer makes you an offer, be sure to do your research online about the offer, the company and the person.

2. Ask your provider if the lender is placing any price adjustments or extra conditions for approval on your loan. In layman’s terms, ask if they are increasing your interest rate above the base rate for any reason and why. If so, you may want to shop around further.