A Short Refinance, also known as a short payoff, is a transaction, where the lender agrees to accept less than the full amount owed.
Instead of the property being sold, it is refinanced with a new lender. (You must qualify for a new loan)
The short refinance allows the homeowner to retain ownership of the property, while at the same time avoiding a foreclosure or possible bankruptcy.
If you want to keep your home, but don't have enough equity to get into a foreclosure bailout loan, a short refinance is your answer. By negotiating a short refinance with your current lender, you can obtain a payoff of less than the full amount owed, and refinance your home with a new lender.
Short Refinancing is only for borrowers who are underwater on properties that are considered the borrower’s primary residence, and is intended only for those with non-FHA guaranteed home loans.
Details on the new short refi program
Here are some of the details on the short refinance program.
Participation is voluntary and requires the consent of lien holders. In order for a loan to be eligible, the following conditions must be met:
1. The homeowner must be in a negative equity position.
2. The homeowner must be current on the existing mortgage to be refinanced.
3. The homeowner must occupy the subject property (1-4 units) as their primary residence.
4. The homeowner must qualify for the new loan underwriting requirements and possess a “FICO based” decision credit score.
5. The existing loan to be refinanced must not be a FHA-insured loan.
6. The existing first lien holder must write off at least 10 percent of the unpaid principal balance.
7. You must be able to prove hardship.
Principal Write off – The short payoff serves as payment in full for any debt extinguished.