1. Your new loan amount needs to be within FHA loan limits - which for Scott County, MN is $365k.
2. The homeowner must be current on the existing mortgage to be refinanced
3. The existing first lien holder must write off at least 10 percent of the unpaid principal balance
4. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent (so if your home appraises for $373,402 then you could get a new FHA loan amount of $365k)
One item to note, is that the program allows for a 2nd mortgage up to 115% of the home's value (called combined loan-to-value, or CLTV for short). So the current mortgage lender can convert the portion of your loan over the amount needed for FHA financing into a 2nd mortgage, and it's permissible per the loan program.
Not a lot of lenders offer it though, so it is a tough find.
FHA's regular refinance program will do the same - it will have all of the 4 requirements above except for #3, and you cannot put a 2nd mortgage on the home over 97.75% doing what you'd be doing. See http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/fi for those requirements on maximum CLTV when you are refinancing with FHA. Many lenders are doing that, including us.
However if you are on an interest only loan, what type of monthly payment would you find affordable? What is your payment now? What is your interest rate now? How much is owed on your mortgage? How much is your home's value? Those (among other important information) will help determine if:
1. Refinancing would even help out your payment
2. What the new refinance terms could be
I will just reiterate with everyone else that a loan modification should be incredibley difficult to obtain, however there are local goverment assistance programs helping with loan modifications, and if your loan is backed by Fannie Mae they are improving the loan modification process. You should be getting help with this instead of doing it on your own.
You could always try to do a short on the 2nd only and threaten bankrupcty, immenant foreclosure, etc... and try to settle? Would that help you make the payments on your house I have no idea but it is possible.
There is a process to short sales, and I am not sure if all the bases have been covered on the loan mod or not. It does not seem you are comfortable with the situation so my guess is no. There is not enough information for me to give a definitive answer.
You can always contact me if you have further questions! I write a lot about loan modifications on my blog so feel free to check it out below..
Is your Realtor an experienced short sale negotiator? How many short sales has he / she negotiated in the past year?
If you are dissatisfied with your agent you should interview two or three experienced Realtors. Ask them the questions above.
Our Real Estate Attorney is an experienced short sale negotiator and may be able to help.
Shane is absolutely right about the FHA guidelines. I have tried helping my clients into that program a couple of times, but didn't have any luck. The problem is that, while FHA allows for it, the underwriting and servicing lender have to approve it within their scope of lending, which as he said, is very tough. On top of that, your current lender has their own guidelines as to what they will and won't allow, and what their investor's intentions are regarding your loan.
If you are going to try a short sale, be sure your agent applies for a HAFA short sale on your behalf. It sounds like it may be the best fit for you, and can get you relocation assistance money.
If you need assistance, I'm located in Prior Lake and would love to talk with you.
We specialize in short sales, so in the event that you do go that route, I'd be happy to help you out. We can usually get our clients qualified for up to $12,000 in relocation assistance money under one of the 2 or 3 government backed short sale programs.
Loan modifications are tough, so good luck. I wish you the best.