How to ‘Refinance My Mortgage’ With No Equity

Agent providing insurance cover to a young coupleWatching the real estate market you’ve probably noticed that refinance rates are quite low right now. With the turn in the economy of recent years the interest rates dropped and continued to drop until they hit an all-time low. Right now they’re still pretty low, which means it’s a great time to refinance. But you may think that knowing all of this won’t help you if you own a home but have no equity in it. And it’s true, most of the time lender’s don’t want to refinance unless there is about 20 percent equity in the home. That’s only most of the time though; it’s not all of the time. You may be asking yourself this question, “How can I refinance my mortgage when I have no equity?” If so, here is the answer.

Refinance My Mortgage Using HARP

The federal government has created multiple options for homeowners who want to take advantage of the refinance rates but aren’t in a place financially that will enable them to do it. One of these programs is the Home Affordable Refinance Program. With this program you can refinance your home mortgage if you are what is termed ‘underwater’ on the loan. When you are underwater this just means that you owe more on the home than it is actually worth. Most of the time this happens when you buy in a real estate peak season and the market drops shortly after. When the market drops it causes house values to drop and unfortunately, the values can drop lower than the value of the loan. No homeowner wants to be in this situation.

To refinance with HARP you have to be current on your existing home mortgage and you have to have paid all of the payments of the last twelve months on time and in full. You must also have a mortgage that is currently held by a lender who follows the Fannie Mae and Freddie Mac underwriting guidelines. If your loan is currently held by an FHA approved lender, you’ll have to look into other options.

Last but not least, you have to live in the home you are trying to refinance. If the home is an investment property and you have renters living there, this option may not be available for you so keep that in mind when you apply for help through the Home Affordable Refinance Program.

Taking Advantage of the Short Refinance

As mentioned above, you won’t be able to use the affordable refinance program if you already have an existing FHA loan, but that doesn’t mean there aren’t options out there for you. There are. When you are underwater on your federally insured loan you may want to ask your lender this question: “Can I refinance my mortgage using a short refinance?” The answer just may be yes.

The short refi option is in place specifically for federally insured loans. Much like the Home Affordable Refinance Program, it is an option for homeowner’s who are underwater on their mortgages and are looking to get back on top. With this option the lender actually agrees to forgive some of the existing mortgage debt, removing thousands of dollars until the mortgage is not more than 97.5% of the value of the home. It’s not a cure-all for financial problems, but it can help you regain control of the mortgage you are currently dealing with.

To secure a short refi you have to work very closely with the lender. He has to agree to forgive the debt and that agreement must be in writing. If they don’t agree to this then you’ll need to find other options. However, the program was put in place for homeowner’s, and a lot of lenders are willing to work with it because it is less costly than having a homeowner default on the loan and end up in foreclosure.

When you’re thinking that you absolutely must ‘refinance my mortgage’ to get back on top, you will want to look into one of these options. They aren’t your standard refinance which means they won’t be as lenient as a standard refinance and you probably won’t end up with the same benefits that you would if you had been able to refinance with a bunch of equity in the home. However, they are a great way to get back on top and in control of your mortgage rather than ending up in a situation where the loan goes into default and you lose the home due to foreclosure.

Whether to refinance my mortgage or not is a good question. Here is a good site to help you  find your answer.

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