For most of us in Southern California, the wonderful new mortgage rates of 5% and below are unattainable dreams. The reason? You can’t refinance if you owe more than your home is worth. In fact, traditional refinances are only for those who have at least 80% equity in their homes. With home values dropping like stones around here, that’s not easy.
Obama’s recently announced Housing Stabilization Plan is changing all that. The plan, announced last week, is specifically targeting those homeowners who are making their payments and attempting to be as responsible as they can. It’s difficult, though, to continue making the $3000 a month payments on your $430000 mortgage when your home is worth only $330,000. It’s tough paying that 7% or 8% rate, looking forward to the balloon in a couple of years, when you know that 5% or 4% rates are currently available.
Details of the new plan will be announced next week, sometime after March 4th, but we do know a few parts to the initiative. It will be for owner-occupied properties. The plan specifically eliminates “speculators” or “flippers” and targets owner-occupied properties. Word is, though, that properties that were primary residences and then turned into rentals as the owner-occupant moved into a better home may be considered.
Beyond this, we know that the plan will allow up to 105% of loan to value instead of the traditional 80%. The example given in the white paper from the White House is the following: A family purchased a home for $260,000with a 30-year mortgage of $207,000 at 6.5%. Today, the family owes $200,000, but the value of the property is now $221,000. They can refi with the new plan at 5.1% and save $2300 per year.
And we know that the first mortgage is what will be used to make the determination. Rates of 3% and 4% have been mentioned. The Obama administration thinks that about 4 to 5 million homeowners might be helped with this plan.
Of course, refinancing means getting a new loan. The borrower must be current with his existing mortgage, have good credit and have the income to qualify for the new loan. Also, as with any refi, costs do accrue for appraisal, title insurance and other closing costs, most of which can be added to the balance of the loan.
Can’t qualify for a refi? Not to worry–maybe you can get a loan mod. Stay tuned. That’s for the next post.