May 24, 2024


Mad about real estate

Principal Reduction Program – How To Get A Principal Reduction

Is your house upside down?  Are you looking for a principal reduction program? Then read on to find out how to lower your mortgage balance…

There are three ways to get a principal reduction.

1. Go with a principal reduction Hedge fund and refinance your loan

2. Qualify for a HAMP loan modification

3. Get an FHA Refinance for homeowners who are upside down on their mortgages.

Now, option 1 is pretty controversial.  I have yet to see or hear from anyone who has actually had this go through.  After searching on the internet, you will probably just find complaints about so called “Hedge Fund” principal reduction programs.  If I were to attempt this option, you can be sure I would NOT pay any upfront fees.

Option 2 is a HAMP Loan Modification.  This is the best option for homeowners who are upside down on their mortgage and have the qualifications to get approved.  You have to be employed (or have income coming in), have a financial hardship that prevents you from being able to make your current payments.

The good news about the HAMP option is that starting October 1st, 2010, new HAMP guidelines are being implemented making a principal reduction the number one way to reduce homeowners monthly payments to 31{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} of their monthly income!  This is basically the opposite of the current guidelines, where a principal reduction was the last resort.  It will most likely still be hard to qualify for a HAMP or any modification, so you might want to use a modification company to help get you approved.  There’s a link at the bottom of this article to a good one.

In addition to a principal reduction program, with HAMP you can also reduce your interest rate to 2{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} and extend the terms of your loan (i.e. 30 years to 40 years).  Even if you do not get a principal reduction with this program, you could still get a 2{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} interest rate (paying off your principal faster) and your payments are going to be very low.

The HAMP program for principal reduction has some requirements as well. You must live in the home, you can’t have a balance much higher than $700,000 and you had to originate the loan before Jan 1st of 2009.

If you meet those requirements, I would recommend you try to get a government backed HAMP modification.

Option 3 is the FHA Refinance for underwater homeowners.  Where the HAMP mod is geared towards homeowners who cannot afford their mortgage, the FHA refi is more for homeowners who are able to make their payments, but have negative equity.  In short, it’s a program to stop people with money from walking away from their homes to purchase a new one at current market prices.

The new FHA loan should re-equify the borrower by reducing the amount owed on the original loan by at least 10{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} and resulting in a principal amount less than the home value. After refinance, the combined first mortgage and any secondary liens cannot surpass 115{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} of the current value of the home.

“This refinancing will help homeowners by setting monthly payments at affordable levels and decreasing the mortgage burden for families owing significantly more than their homes are worth,” Treasury said. “Keeping more responsible families in their homes should support the continued recovery of the housing market.”

If you are interested in either the HAMP Modification or the FHA refinance, I recommend  They are fully compliant with all applicable laws and have had great results with both of these programs.