Home Loan Modification Vs FHA Loan Refinance - What You Should Get and Why

By Timothy Croy

Are you one of the millions of American homeowners who has been suffering from the economic recession and is worried about paying your mortgage this month? If so, you need to talk to a financial counselor today about home loan modification vs. FHA refinancing.

Two of the best options available to homeowners who have been painted into a corner with their home mortgage loans are loan modification and FHA refinance, and which one is right for you depends mostly on who insures your loan. To find out, call your lender and request that information. The three big insurers of mortgage loans are Freddie Mac, Fannie Mae, and the FHA (Federal Housing Administration.) None of these companies actually lend the money, but they are commissioned by Congress to insure 100% of the loaned amount of money. This minimizes risk for the lenders and gives you the chance for a better interest rate.

What is the difference between Fannie Mae/Freddie Mac loans and FHA loans? Well, not a whole lot. It just depends on your specific mortgage loan and who insures it. There is no major difference between an FHA loan and a loan owned by Fannie Mae or Freddie Mac. The only time it really matters is when you're looking at restructuring your loan to make it more affordable. If your loan is backed by Fannie Mae or Freddie Mac, then you can participate in the President's new Making Home Affordable mortgage loan modifications. If your loan is backed by the FHA, then look into special refinances made possible by the Hope for Homeowners plan.

In the case of an FHA loan, look into refinancing. The Hope for Homeowners initiative makes refinancing possible to those who previously were denied a refinance. Falling house prices have disqualified a lot of people for refinancing they desperately need. As house values have fallen, so have their levels of home equity. If they drop below 20% home equity, they were unable to refinance in the traditional way.

Loan modifications through the Making Home Affordable plan follow a standard chain of steps for lowering your monthly payments. The plan includes incentive payments to both lenders and borrowers to facilitate successful loan modifications and encourage economic stability. If you have an FHA loan, you can still modify it but not through the Making Home Affordable plan. The programs that handle FHA loan restructures do not follow procedures that are quite as streamlined or as strict.