Short Refinance Option

Short Refinance FAQs

What Is a Short Refinance?

A short refinance is a form of loss mitigation in which lenders agree to lower the amount due on mortgages in order to allow homeowners the ability to refinance under terms that are more favorable.

Why Would a Lender Agree to a Short Refinance?

When it comes to troubled mortgages, the main concern of lenders is the value of the property and the amount indebted to them. Lending institutions are open to a short refinance because it’s a better alternative to foreclosure or short sale. During a short refinance debt negotiation, the market value of a home applies, whereas a short sale represents the best offer the lender can get from a quick sale. Given the current condition of the real estate market, buyers have the upper hand and the best offer will not reach the market value. Concerning foreclosure, the cost to the lender reaches about six figures.

Will I Need to Repay the Difference?

With short refinance debt negotiation, most homeowners, especially those without considerable assets, are released from the full balance on their mortgages. However, you may be required to pay taxes on the absolved portion of the loan if loss mitigation is not for a primary residence. For more information, ask your tax accountant about The Mortgage Forgiveness Debt Relief Act.

Can Homeowners Receive Money for Refinancing Mortgages?

No, a short refinance is the result of debt negotiation. Since this form of loss mitigation can only be reached via the lender accepting less than the amount owed, homeowners will not receive any money from their mortgages at closing.

How Does a Short Refinance Loss Mitigation Affect My Credit?

Sometimes lenders will provide less than favorable credit reports on mortgages that resulted in a short refinance. In such cases, the information on short refinance loss mitigation will be issued to the credit bureaus as a settlement for less than the full amount, thus lowering your credit score. However, many lenders will report mortgages as fully paid from a short refinance, which can actually improve your credit rating.

How Long Does It Take to Complete a Short Refinance?

The timeline for this form of loss mitigation depends on individual circumstances. However, the entire process can often take up to three months. Make sure you provide all of the necessary documentation for debt negotiation and frequently follow up with your lender in order to keep things on track.

What Do I Need to Qualify for a Short Refinance?

Once the debt negotiation process is complete and the lender agrees to a short refinance, you will need to apply for an FHA (Federal Housing Administration) loan. Through the FHA, homeowners are able to qualify for low fixed interest rates and high LTVs.

What is a “Short Refinance / Short Payoff”?

A short payoff occurs when a lender agrees to accept less than the outstanding loan amount to satisfy the homeowner’s loan. A short payoff allows both the lender and the distressed property owner to avoid foreclosure by refinancing the property with a reverse mortgage. Combined with the weak real estate market the following are common situations facing distressed sellers:

  • Declining real estate values;
  • Unexpected health issues resulting in difficulty making mortgage payments;
  • Lending rate increases on adjustable rate loans;
  • Divorce;
  • Over-extended borrower with multiple mortgages;
  • Job loss or transfer

Short payoffs are more complicated and time consuming than an average real estate transaction, making it important to retain experienced assistance to oversee and negotiate the transaction. Special attention must be paid to all terms or addenda, which are often written in favor of the lender and seller rather than the buyer.

Lenders Prefer Short Refinances / Short Payoffs/ Short Sales
Short payoffs are more beneficial to a lender than a foreclosure. Lenders prefer short payoffs because they are not in the business of managing and owning property and short payoffs are less expensive than completing the foreclosure process. Lenders accepting short payoffs receive a substantial percentage of the outstanding loan amount due without waiting for a time consuming foreclosure, and they are able to avoid foreclosure and maintenance fees. Senior Financial Solutions is experienced in negotiating with lenders to obtain a timely short payoff that satisfies both the lender and the homeowner