There are definitely options in the market that are available for you to refinance your mortgage without equity in your home. But your success will depend on several factors such as your credit score, neighborhood values, type of loan and your finance, employment and product eligibility.
For example, if your home is underwater you may be able to refinance with the U.S. government’s Home Affordable Refinance Program (HARP). This program allows eligible homeowners who are current on their home loans to refinance under HARP if their mortgages are held by Fannie Mae and Freddie Mac. You can benefit from having either a “No Cost” or you can also add costs to the balance of your loan and have the refinance done with no funds needed from you as the borrower.
Here are the key points on the HARP program:
* Owner Occupied, 2nd Home and Investment Property options available.
* The loan on your property must be owned or guaranteed by Fannie Mae or Freddie Mac and obtained by Fannie Mae prior to May 31st, 2009.
* At the time you apply, you are current on your mortgage payments (you have not been more than 30 days late on your mortgage payment in the last 12 months; or, if you have had the loan for less than 12 months, you have never missed a payment).
* It doesn’t matter what you owe on your property compare to what it’s worth
* You have a reasonable ability to pay the new mortgage payments and meet debt-to-income ratio requirements.
* The refinance improves the long term affordability or stability of your loan.
VA and FHA Streamline Refinancing
Also, if your mortgage is a VA or FHA loan, you may be able to do what is called a “streamline refinance” that is done without an appraisal and very limited documentation is required. Instead of requiring an appraisal to determine the current market value, the FHA and VA allows the original purchase price to be used for the lender’s valuation, regardless how far underwater you may be in today’s market.
In order to qualify for a streamline refinance, your mortgage must be in good standing and they require a perfect 3-month payment history. Only one late payment is allowed within the previous year, borrowers who have been 30-days (or more) delinquent within the last 12-months will not be eligible for this type of refinance.
Also the refinance needs to make financial sense. Loan applicants must be able to demonstrate a “Net Tangible Benefit” such as it reduces the monthly payment (principal, interest and mortgage insurance) by at least 5%. Taking cash-out and using equity will not be considered, however changing from an adjustable (ARM) into a fixed-rate mortgage is allowed under the program.
Of course there are other factors that will come into play in determining if you’re able to refinance your mortgage without any equity. If you have more questions and would like to ask me them, please feel free to call me at 1-900-779-4547 or email me at Erik.Sandstrom@CaliberHomeLoans.com.