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  • The FHA Short Refinance program is designed to help homeowners who are current on their mortgage payments but cannot qualify for a mortgage refinance because their home is underwater or worth less than its mortgage balance.

    FHA Commissioner described the Short Refinance Program as a life line the FHA was throwing to help households suffering financial hardships because of the decline in property values. The program has two main goals: to reduce monthly mortgage payments and to provide a safer and more secure mortgage.

    For instance, households who are locked in a variable interest mortgage and are already struggling to make ends meet could face foreclosure if the interest rate of their mortgage rises. If they can refinance to a fixed-rate mortgage with a low interest rate, they can protect their mortgage from future hiccups in the economy and guarantee themselves a mortgage they can afford. A fixed-rate mortgage also allows you to budget better because you know how much you need to pay for your mortgage every month.

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    If you think you qualify for the government’s short refinance program, you should contact your lender. The program is voluntary and your lender has the last word when accepting or denying your short refinance application.

    To qualify for a short refinance program you must have a loan insured by the FHA, have a credit score of 500 or higher, live in the property as your main residence, have an underwater mortgage and be current on your mortgage payments.

    The Treasury Department gives lenders incentives for approving short refinance mortgages. However, to receive such incentives the lender must agree to reduce the mortgage balance by at least 10 percent. The refinance mortgage must have a loan-to-value ratio of no more than 115 percent. This means that the mortgage balance of a short refinance cannot be more than 15 percent over the appraised value of the property.

    The Short Refinance Option will be open for homeowners until 2012 and could help up to 4 million homeowners improve their financial security and reduce their mortgage payments. Refinancing your mortgage for a lower interest rate can save you thousands of dollars and help you pay off your mortgage early.

    However, what if you are a senior resident. Does refinancing make sense for seniors? Our next article will study the refinance programs available to senior residents and analyze which options are more advantageous.

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