If you are trying to renegotiate your mortgage under the HOPE for Homeowners program, make sure you read the fine print. HOPE for Homeowners (H4H for short) was signed into law this summer as a means of trying to keep homeowners in their homes and prevent them from defaulting on their mortgages. Under the program, lenders refinance the current mortgage to a maximum of 90% of the home’s current value. The new loan can only be a 30 year fixed rate loan. The FHA is insuring these new loans.
The H4H program, while giving great benefit up front, is costly on the back end. You get to keep your home and avoid foreclosure but at significant cost. If you participate in the program, you will have to split the equity in the house with the FHA when you sell your house. FHA gets a 50% share of the home’s equity for as long as you own the house even if you pay off the mortgage. If your home increases in value, you have to share the amount of the increased equity with FHA as well.
Other rules apply as well. Program participants are prohibited from taking out a second mortgage unless the money is used to maintain the house. There is also mortgage insurance to pay at 1.5% of the mortgage amount. Usually, an FHA mortgage only has a .5% premium.
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