A Short Pay Refi or Short Pay Refinance is similar to a short sale in some ways. The lender forgives a portion of the loan and accepts less than it is owed.
That is where the similarities end, radically. In this case, the home owner gets to keep the house and now has a new loan with a new lender.
The owner begins the process of short pay refi by applying for a refinance. In the case of this refinance, the previous lender must agree to accept less than it is owed. If the previous lender does not agree to this, the short pay refi will not happen.
As an example, if you owed $700,000 on your home, and the current value of the home is $550,000, your current lender would have to agree to forgive the difference when you receive your new loan.
Why would a lender agree to a short pay refi?
Your lender might agree to a short pay refi for the same reasons they would agree to a short sale.
- You’re in imminent danger of defaulting – failing to make a payment – on your loan.
- You have a hardship.
- You can’t continue to make the current payments.
- It makes more fiscal sense for the bank to allow a short pay refi than to do a foreclosure.
Can you qualify?
The following is a list from the lender in Orange County with whom I do short pay refis.
- Zero 30 day lates on your mortgage in the last 12 months.
- Mid FICO/credit score = 620
- Your loan must be with a lender who is willing to do a short pay refi.
– Some lenders refuse to consider short pay refis.
– Some lenders require that the borrower apply for a loan modification first.
The obvious advantage to a short pay refi is that it allows you to keep your home.
If you would like to know if you might qualify for a short pay refi, please contact me at 714.319.9751 to set up a free consultation.