Mortgage California Blog

Refinancing When You’re Underwater

February 7th, 2013

Approved Mortgage loanRefinancing When You’re Underwater

f your home is  worth less than what you owe, you’re underwater, and that’s not a fun place to be, especially with interest rates at historic lows.

You can make the payments, but you’d rather not spend that much on them.  Here’s what you can do.

Step One: Are you really underwater?

Housing prices have gone up in a number of areas.  Your home may have crossed the threshold.  Or perhaps you received a low appraisal when you purchased the home.  (Please see our other blog post on tips for increasing your appraisal value.)

Step Two: Are you current on your payments?

If you can show that you’re a good lending risk and all of your obligations are current (see our post on your credit score), lenders tend to be more flexible as you’re not a credit risk.

Step Three: The details

First, figure out who guarantees or owns your mortgage.  If it’s backed by  Fannie Mae, Freddie Mac, FHA, VA or USDA, then there’s a good chance you can refinance.

There is a Federal program called The Home Affordable Refinance Program (HARP) part of the Making Home Affordable program.  They have certain requirements for refinancing:

  • You are the owner-occupant of a one- to four-unit home.
  • At the time you apply, you are current on your mortgage payments.
  • The amount you owe on your first lien mortgage does not exceed 125 percent of the current market value of your property.

If your loan is backed by the FHA, you will want to look into the FHA Streamline Refinance program.  Their requirements are:

  • You will not have made a late payment in the past 12 months.
  • You will not have completed an FHA Streamline Refinance in the prior 6 months.

If you’ve financed with Veterans Affairs (VA), then you will want to find out more information about that Interest Rate Reduction Refinancing Loan (IRRRL).  Their only requirement is:

  • You must refinance into a loan with a lower interest rate unless you are refinancing into a fixed-rate mortgage from an adjustable-rate mortgage (ARM).

And if you’ve been guaranteed by the USDA, there is a pilot program (only available in AL, AR, CA, FL, GA, IL, IN, KY, MI, MS, NV, NJ, NM, NC, OH, RI, SC and TN) called the Single Family Guaranteed Rural Refinance Pilot.  Their requirements are:

  • You will not have made a late payment in the past 12 months.
  • Your current mortgage rate must be 100 basis points higher than the refinance rate. Example: If your current interest rate is 6 percent, you would need to refinance into a rate that is equal to or lower than 5 percent.
  • Make sure you contact your current servicer or the USDA Rural Development Office.

What If I’ve Missed Some Payments

Sometimes, things happen.  You had the flu and forgot to schedule the payment until it was considered late.  Money was tight.  We’ve all been there.  There is a program as well called the Home Affordable Modification Program (HAMP)

The Last Step

The final step for all of the options is to contact your local mortgage loan officer and verify your eligibility and find the best rates for your situation.  Loan Officers are trained in all of these programs and monitor the rates to find the best options for you.

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