A short mortgage refinance through the FHA could be an option to a short sale.
A home owner may find himself in a situation where the value of his home is less than what he owes on his current mortgage. A short refinance through the FHA will allow the home borrower to refinance up to 96.5% of the current value.
This allows the homeowner to continue to stay in his house and make mortgage payments that reflect the current home value.
In order to take advantage of a short refinance, your current lender has to be agreeable to writing off any mortgage debt in excess of the amount you refinance.
In order to qualify for a short refinance through the FHA, there are certain guidelines that you need to comply with.
1) There must be no late payments on your current mortgage and the loan must continue to remain current during the process of refinancing.
2) The current lender must agree to except the proceeds from the FHA is full and final payment and agree not to pursue the FHA or you for the recovery of any remainder amount. He must execute a non-recourse agreement stating that they will not pursue a deficiency judgment against you.
3) You will need to order a professional appraisal to determine the current value of your home.
4) You must qualify for refinance according to the FHA guidelines.
The FHA the mortgage lender will require documented proof of financial hardship. This documented proof need to imply that imminent default on the mortgage is due if the mortgage is not refinanced to better terms. The following documents may be required:
1) a signed letter stating your circumstances of financial hardship and the reasons for requesting a short refinance.
2) Copies of pay stubs or itemized deposit advice for the most recent months for as far as up to 6 months.
3) Copies of bank statements are past 3 to 6 months.
4) Documentation of all income and debt obligations such as credit card debt, other loans etc.
5) Copies of income tax returns for past three years.
The drawback to a short refinance is a possible hit to your credit score. Check this with your lender and whether he will be reporting a ‘settled’ debt to the credit agencies.