Can I Refinance My Home That has No Equity?

 

underwater refinanceMany homeowners think a refinance isn’t a possibility for them because there is no equity. But here is a thought you might want to entertain, ‘Can FHA refinance my home and help me get equity?’ This thought may be the key to getting you into a mortgage you can manage. A home purchase is typically done for two reasons. First, a place to live and second, an investment. Like any investment, this purchase can sometimes go the wrong direction, leaving the homeowner struggling to meet the demands of a debt that is more than the asset is worth. When you find yourself in this situation, you may realize that a refinance can help solve the problem you are dealing with.

HARP and HAMP

underwater mortgageAfter the real estate market plummeted a few years ago, the government implemented multiple programs to help people who lost equity and who ended up with a mortgage that’s bigger than the house is worth. These programs are specifically for people who had mortgages prior to the crash. The first of these programs is HARP, which stands for the Home Affordable Refinance Program. When you ask ‘can FHA refinance my home with no equity?’ the answer is yes; they may be able to if you qualify for HARP.

The Home Affordable Refinance Program is specifically geared toward homeowners who do not have existing FHA mortgages. They also cannot be late on their payments or delinquent in any way. This program is for people who have managed to maintain their mortgage despite their underwater status. Through this option of refinancing, you taking advantage of the low interest rates available today. In time, this will reduce your mortgage payment and free up money to help you build equity.

The second program is HAMP, which is the Home Affordable Modification Program. Even though it is not a refinance, it’s an option to modify your existing mortgage, making it manageable for you. The HAMP program specifically targets homeowners who are delinquent or facing delinquency on their mortgage. Those who can prove that a financial hardship has dropped on them, and they won’t be able to maintain the mortgage with their current financial state may qualify. Again, it’s not a refinance but it’s an option that is worth considering.

Can I Reduce My Mortgage Amount?

underwater refinanceThrough the programs implemented federally, there is a third option that can drop the amount of your mortgage. You can get a refinance that reduces the mortgage through federally approved lenders, but FHA doesn’t own the loan itself. It simply insures it. That being said, there is a program that has been implemented around the time the market dropped that will reduce your mortgage amount. This program is known as a short refinance and it is available for the homeowners who were affected when the real estate bubble burst.
With the short refinance your lender agrees to forgive part of your mortgage debt, dropping the amount to 97.5% of the value of the home. Many lenders are willing to do this because they’d rather forgive part of the debt than deal with a short sale or foreclosure.

While the short refinance is a great option for some homeowners, it’s not a perfect solution, and it’s not a solution for everybody. It’s only available for those with conventional loans, and you must be current on your payments. With this program being a mix between a short sale and a refinance, it will be reflected on your credit report. It won’t have quite the impact that you would experience with a foreclosure or bankruptcy, but regardless it will be listed and your score will feel the effects. However, when the option is to reduce your credit score a bit or potentially lose your home, it’s worth it to deal with the impacted credit.

When you are in a situation with a mortgage that is underwater or has no equity, there are programs that you can take advantage of. The three mentioned above are those specifically geared for people who were impacted when the real estate bubble burst, and they are set to expire within the next couple of years. If you want to take advantage of them, now is the time to speak with your loan officer and find out which option is best for you.

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