How to Use Government Programs to Help Reduce Your Mortgage Payment

Government programs are open to both new and current homeowners.
i Keith Brofsky/Photodisc/Getty Images

Not being able to pay their mortgage each month is an unfortunate reality facing many Americans. If you miss too many mortgage payments in a row, your lender could start the foreclosure process and you could lose your home, as well as lower your credit score. The federal government, through the U.S. Department of Housing and Urban Development, has created several programs that reduce mortgage payments so that Americans can afford to pay their mortgages every month and avoid losing their homes to foreclosure.

Home Affordable Modification Program

The Home Affordable Modification Program helps homeowners who are behind on their mortgage payments by reducing their monthly payment to 31 percent of their monthly income. To qualify for HAMP, the property must be your permanent residence, or you must currently rent it out or be intending to rent it. You must have opened your mortgage on or before January 1, 2009 and owe up $729,750 on a single family home or $934,200 on a two-unit rental property. The property cannot be condemned and you must not have any convictions on your record of fraud related to real estate. The application process for HAMP starts by submitting an application for mortgage assistance to your lender along with the Form 4506T-EZ or 4506-T tax authorization forms and proof of income documents.

Additional HAMP Programs

You may be able to further reduce your payments through other HAMP-related programs. The Second Lien Modification Program fulfills the same purpose as HAMP, but with a second mortgage. The homeowner must be currently participating in HAMP for the first mortgage, must have not missed three consecutive months of HAMP mortgage payments, and must have a loan serviced by one of 17 participating lenders. Another option, the Principal Reduction Alternative, reduces a homeowner’s principle payments owed on the house by a certain amount as long as the homeowner continues to make on-time payments for three years. You can apply for the Principal Reduction Alternative when applying for HAMP.

Specialty Loan Modification Programs

The government offers several other specialty loan modification programs that mirror HAMP. Loans through the Department of Veteran’s Affairs and the Federal Housing Administration also have versions of HAMP to lower monthly payments for borrowers with those types of loans. To qualify for the FHA HAMP, your mortgage payments must meet the debt-to-income ratios set by the FHA, you must not qualify for any other modification programs, and you must complete a three-month trial period. The VA HAMP requires using the property as your permanent residence and not qualifying for any other modification programs. You can apply for the VA and FHA HAMP programs through each of those organizations.

Other Circumstances

If you’re unemployed and cannot make your mortgage payments, the Home Affordable Unemployment Program can reduce your monthly mortgage payments or even suspend them for up to 12 months. To apply for the HAMP UP program, you should contact your lender to see if it is a participating service provider. You must also use the property as your personal residence and not have used HAMP in the past. Perhaps you can make your monthly mortgage payments, but want to reduce them through refinancing, but don’t qualify for traditional re-qualification programs. The Home Affordable Refinance Program allows you to refinance to a lower interest rate. To qualify, your mortgage must be owned by Freddie Mac or Fannie Mae and your current loan-to-value ratio must be greater than 80 percent. You can apply for HARP through your current lender.

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