Friday, October 28, 2011

Short Refinancing - Frequently Asked Questions

What is a Short Refinance?

A short refinance is when a lender accepts less than what is owed on the mortgage to allow the home owner to refinance.

Will A Short Refinance Damage My Credit?

It depends; unfortunately this question has both a Yes and No answer. The short refinance could show up on your credit as Settled For Less Than Full and may drop your scores 50 -70 points. But in actuality most lenders will report as "Mortgage Paid" after a short refinance, which will actually increase your scores as it has no negative impact, but it all depends on your lender.

Can I get Get Cash Out From The Refinance?

No, since the lender is taking a loss as they reduce the amount you owe them, they will not allow the homeowner to get any money at closing.

Will I have to Pay Back The Difference?

Most lenders will normally release the home owner of the full balance in writing. Especially if they know you don't have any significant assets. And typically the IRS will require that you pay taxes on the forgiven amount but in 2007, they no longer consider the forgiven debt as taxable income on primary residences. Please consult with your tax advisor for more details on The Mortgage Relief Debt Act.

How Long Will The Process Take?

It depends on your specific lender, but normally you are looking on about 30 - 45 days. The key is to make sure you give the lender everything they need in a timely fashion and continuous follow up with your lender on a daily basis.

What Will I Need To Qualify?

Once you lenders give you the go ahead to start the Short Refinance procedure, then it's just a matter of getting qualified for an FHA Loan. FHA has some of the lowest fixed rates available in today's market as well as the the highest loan to values which is preferred by most lenders that are participating in short refinances.

How Much Will This Cost Me?

It depends on the loss mitigation professional that you are working with, but most normally charge about 1% of the new loan amount which is paid at closing and normally the only upfront fee is for the FHA appraisal.

Why Would A Lender Participate In A Short Refinance?

Lenders only care about two things, which is how much you owe them and how much the house is currently worth. The reason they will consider to do a short refinance is because they will get more money out of a short refinance when compared to a short sale and a significant amount more than if the house was suppose to go into foreclosure.

The short refinance is based on the market value of the property, while the short sale is based on the best offer and no one in this market is going to pay market value for a home today. Also the average foreclosure will cost a lender about $100,000.

By: Marlon Baugh
Marlon Baugh is a nationally-known mortgage expert. Since 2003, he has specialized in Florida FHA Mortgage Loans for people with Bankruptcies, Foreclosure or with other credit issues, as well as Florida Loss Mitigation. If you would like a Free Copy or to get instant access to the remainder of this Insider Mortgage Report, please visit or Call 954-678-5796

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