Conventional mortgage lenders will only refinance a home if the loan value is equal to or less than the current property’s value. This wasn’t a problem when property prices rose at the rate of inflation or faster. Even during the stagflation of the 1970s, when unemployment was in the double digits, property prices rose by 10% a year or more. The Great Recession has caused property values across the nation to drop anywhere from 10% to half of their 2007 highs. What are your refinancing options when your home has devalued?
1. FHA Streamline Refinance
The FHA streamline refinance is an option for those with an existing FHA mortgage to refinance if they are underwater. The FHA streamline process is intended to reduce the amount of paperwork and cycle time for mortgage refinancing. As part of the paperwork reduction, borrowers can reuse their original property appraisal when applying for the mortgage refinance. The benefit of this for those whose property has devalued is that the FHA streamline refinance will use the original, higher property valuation as part of the refinancing. Borrowers can get a lower interest rate, reduced mortgage insurance rate or both as part of the FHA streamline refinance program.
2. VA Streamline Refinance
The VA streamline refinance is the Veteran’s Administration streamlined refinance program. Those with VA mortgages can refinance their existing VA loan through the streamlined mortgage program, reusing the original or most recent property appraisal for the mortgage refinancing. Veterans disabled while in the service can have their mortgage refinance fees waived.
3. Hope for Home Owners program
The Hope for Home Owners is limited to those who are behind on their adjustable rate mortgages. Unlike other FHA and VA programs, HUD allows mortgage holders who do not already have a federally backed mortgage to enroll in the program. Furthermore, the program is specifically for those who are struggling to make house payments and behind or late on their adjustable rate mortgage.
Hope for Home Owners or H4H is not for those who default strategically. Home owners are not qualified if they lied about their income in order to qualify for the mortgage, such as overstating income. The H4H program is not an option for investment properties or second homes. And the borrower must have received the original mortgage before January 1, 2008.
4. Home Affordable Refinance Program
The Home Affordable Refinance Program or HARP is a mortgage refinance program for those whose loan to value ratio is 105% to 125%. For example, a $125,000 mortgage on a property that is now worth $100,000 is eligible for the HARP program. The HARP program has a number of restrictions. Home owners cannot be behind on their current mortgage or a past due balance. They property cannot be in foreclosure. And the HARP program is only open to those with a Fannie Mae or Freddie Mac loan.
HARP is not available to those with VA or FHA loans. And HARP is only an option for those whose mortgage was sold to Fannie Mae or Freddie Mac before May, 2009. You cannot refinance under HARP if you’ve already refinanced through the program once before.
5. FHA Short Refinance
The FHA Short Refinance is open to those who do not already have a FHA, VA or Fannie Mae mortgage but otherwise qualify for an FHA mortgage. You must be living in the property and current on the mortgage. The program is restricted to those whose debt is less than 55% of their monthly pre-tax income. However, the program lets you refinance a property with negative equity, the politically correct term for owing more than it is worth.
Stephanie Bailey is a mortgage broker dedicated to helping people get the best home loan for their individual needs. Click here to look at more refinancing options.