Mortgage Q&A: “Can I refinance with negative equity?”
Nowadays more and more homeowners are finding that their home isn’t worth what it once was.
In fact, many are discovering that their current mortgage balance exceeds the value of their property, putting them in a position of negative equity, otherwise known as being upside down or underwater.
Negative equity has been on the rise in the past few years as a result of falling home values and high loan-to-value loans, you know, the ones where borrowers put next to nothing down.
Unfortunately, many of these borrowers also elected to take out adjustable-rate mortgages, or worse, option arms.
While the mortgage indexes tied to these loans are super low, many homeowners want to take advantage of the record low fixed rates currently available, and who can blame them?
However, most lenders frown upon borrowers with little or no equity in their homes; not to mention that many banks lowered maximum LTV ratios in light of the mortgage crisis.
So, how can a borrower refinance if they have negative equity? Well, the U.S. government saw what was happening and decided to step in and lend a hand.
Earlier this year, the Obama Administration created the so-called Home Affordable Refinance Program (HARP), which allows “underwater borrowers” (those with negative equity) to refinance in order to take advantage of these record low rates and improve affordability.
The program allows you to refinance your mortgage up to a loan-to-value of 125 percent, meaning if your home is worth $100,000, the max loan amount you could receive would be $125,000.
To qualify, you must be current on your payments, the home must be an owner-occupied 1-4 unit property, and your loan must be owned by Fannie Mae or Freddie Mac.
If you meet those qualifications, contact your mortgage lender or loan servicer to get the process rolling before those low rates disappear.
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