Short refinance program is almost similar to a loan modification program. As the name suggests, this program will enable you to refinance your mortgage. Though it is similar to loan modification, but it involves principal reductions rather than just rate reductions. Typically, if the homeowner owes more than what the property is currently worth, the lender must agree to reduce the loan balance by 10 percent. This can work out in favor of homeowners who are on the verge of default. Like the loan modification plan, this refinance mortgage too requires voluntary cooperation of your current lenders. This means that the loan lender, i.e. the bank or an institution should be willing to write down the value of the property. Once the property value is written down, the reduced loan is handed over to the government. The US government then refinances borrowers with loans backed by Federal Housing Administration (FHA).

This kind of mortgage help comes as a respite for homeowners in troubled waters. Lenders will consider writing down the property value instead of going ahead with a foreclosure. Typically, a foreclosure will cost more to the lender as compared to a short refinance program. Indeed, this program is a win-win situation for both, the borrowers and the lenders. The objective of this plan is to help homeowners who are struggling with large mortgage payments.

Check if you are eligible for this refinance mortgage. It will give you an idea if you qualify for this plan or not. Before we discuss the eligibility criteria, you may want to know that if your loan is already backed by FHA, then you cannot participate in this option. If you qualify for this type of mortgage help, then you will have to pay transaction fees and mortgage insurance. Here are the eligibility criteria to qualify for short refinance program.

Eligibility

• Your property must be in negative equity position

• You must be current on your loans and owe more than your property is worth

• The property should be your primary residence and not a second home

• FHA will check your credit score, it should be greater than or equal to 500

• Your current loan should not be backed by FHA

• The refinanced mortgage must have a loan to value ratio of no more than 97.75 percent

Apart from this, there are other criteria too. It is advisable to seek thorough advice before you go ahead with this short refinance program. In fact, you must first talk to your lender to check if they are willing to cooperate. They must agree to write down the property value. This program is meant for those homeowners who haven't defaulted in their payments. Unlike other mortgage plans, this program is not extended to delinquent borrowers.

Refinance mortgage is like a boon in difficult times. It can prevent your home from going into short sale or foreclosure. You can save your home and refinance the mortgage with FHA backed loan. Indeed, a very thoughtful plan of Obama administration. If this program works well, it could deal with the risk of strategic default.