Refinancing an Underwater Mortgage

Refinancing an Underwater Mortgage

 

For most of us, our home is the biggest investment we’ll ever make—and we pour our hearts, souls and hard-earned cash into making it the best one possible as well. Of course, the value of our property fluctuates with the real estate market. When it’s good, our investment grows. When it’s bad, we can end up underwater—like 28.2 percent of U.S. homeowners were in third quarter 2012.

According to the real estate website Zillow, these mortgages added up to more than $1 trillion in negative equity. And while one might think that the 14 million borrowers affected were shut out of all money-saving refinance opportunities, the assumption would not hold true. In fact, it is sometimes possible to refinance an underwater mortgage.

 

Ask Who Guarantees Your Mortgage Your home loan may be owned, or guaranteed, by Fannie Mae, Freddie Mac, The Federal Housing Administration, Department of Veterans Affairs, your lender or a private investor. Before you can evaluate your refinance options, you need to figure this out. What’s the best way to do so? Just contact your mortgage servicer and ask.

 

Put Cash In Regardless of who owns your mortgage, a cash-in refinance is always an option. Should you choose to pursue a lower interest rate in this way, you will be required to contribute cash at closing in addition to the usual settlement fees. The exact amount depends on your lender and the underwriter’s loan to value requirement.

 

Have a HARP If your mortgage is owned by Fannie Mae or Freddie Mac, you may be eligible for the Home Affordable Refinance Program. You’ll need cash for closings costs unless you elect to roll them into your new loan, but you won’t have to fork over the thousands generally required in a cash-in refinance. You must be employed and current on your mortgage payments to qualify.

 

Play with the FHA If your mortgage is owned by your lender or a private investor, you may be able to secure a FHA Short Refinance. Your lender must participate in the program and you must be current on your loan payments. As part of the refinance, the amount you owe on your first mortgage will be reduced to no more than 97.75 percent of your property’s current value.

 

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