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“Making Home Affordable” Plan Designed for Consumers with Low Credit Score

By Sally Maison
Published: Thursday, October 22nd, 2009

Another government intervention plan is set to come out aimed at helping homebuyers with low credit score get low-interest rate loans for their purchase. With previous federal programs on home mortgage refinance now being phased out, the new “making home affordable” plan is expected to encourage consumers to make more real estate purchase. Home refinance allows lenders to provide loans to consumers with relatively low credit scores since government funds back up risks, which normally would have been shouldered by consumers through high interest rates.

“Making Home Affordable” Plan Designed for Consumers with Low Credit ScoreLoans secured by federal government currently have interest rates between 5.25% and 6.0% but they are set to go up before the year ends.  In line with the 2008-2009 finance bills passed by US Congress, “making home affordable” will continue providing lenders with security to prevent costs from skyrocketing. The plan is specifically designed for homeowners who are in the verge of foreclosure and for those who have credit score in the 620 to 699 range, with only about 25% home equity left to back their mortgage.

2008 has been the worst economy the United States has seen in about six decades. This prompted federal government to launch massive intervention to keep American economy from crumbling down. Hence, President Barack Obama’s American Recovery and Reinvestment Act of 2009 (ARRA) was enacted February this year. Like any other stimulus program, it involved using government revenue to stabilize the economy and aid in its recovery.

ARRA is projected by congress to cost $787, which is set aside for federal tax cuts, enhancement of social welfare provisions, and expansions of unemployment benefits. Real estate industry is among the economic sector receiving significant government aid largely because of the increasing foreclosure rates and the decreasing property value. The new home refinance program is set to prevent government-backed securities from rising as the year ends, consequently helping financially trouble consumers keep their homes.

Homeowners who have availed Federal Housing Authority (FHA) loan assistance can get deals with fixed interest rates. The amount of these loans varies but homeowners generally get 97% of the appraised value of their homes. However, consumers who will participate in the new “Making Home Affordable” plan can get 105% financing of the current estimated value of their home. The program also assures that the low interest rates it offers will remain stable all throughout the mortgage term. Thirty-year fixed-rate loans are available for homeowners who still have some equity left and who are currently carrying adjustable mortgage interest rate. Distressed homeowners who meet FHA requirements only have to contact the agency to avail federal aid.

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