A few years ago, you bought a house. You came in with your 25% down. And... poof, today, you've got nada, zilch, nothing, no equity in your house. It's gonzo and a mortgage refinance is next to impossible.
Some of your peeps are able to do a mortgage refinance and go from a 5% mortgage to a 4% mortgage. Their mortgage payment drops by $200 to $300. But you haven't been able to refinance because your house is worth way less than your mortgage. Doesn't that just stink!?!
But your time may have come... enter HARP 2, the new, mortgage refinance government program. HARP stands for Home Affordable Refinance Program. Obama rolled out HARP 1 two years ago but many homeowners couldn't do a mortgage refinance because the value of their house was worth less than their mortgage. Buzz kill.
If your mortgage is backed by Fannie Mae or Freddie Mac, you may be able to refinance even if your home is worth less than your mortgage. This could be in the cards in early 2012.
So what should you do?
Step 1 - take 3 Advil, a hot bath and get a good night's sleep. Then call your mortgage company, broker, loan person, or the bank that has your mortgage and ask if your loan is backed by Fannie or Freddie.
Step 2 - Don't flake out on paying your mortgage. Continue making those payments and stay current. I also want you to be ready to show verification of income from job, like a paystub, tax returns, etc. Sweet!
Step 3 - Think about what you are going to do with the extra dough. If you use it as an extra principal payment on your mortgage, you could shave 3-6 years (ballpark) off the life of your mortgage. How cool is that!
Step 4 -There is no step 4!
But wait just a minute! Where was HARP 2 two years ago? If the government would have implemented HARP 2 earlier, the consumer would be in better shape. Total debt for the American homeowner would have decreased even more and there may have been fewer foreclosures. In order for us to get out of this real estate mess, everyone needs to take a hit (a loss): our government, the banks, and us.
More details on HARP 2 will be released in mid November but in the meantime stay tuned and hang in there...