What’s a homeowner to do when the value of your home has declined and you need or want to refinance to lower your rate or to get out of a variable rate loan and into a fixed rate? Who can you turn to for an upside down mortgage refinance?
“Upside Down” Means That You Owe More Than The Home Is Worth.
Quite honestly, there are no longer lenders who will provide this type of lending on their own. There is one government program that can help some borrowers in this position. The government’s “Making Home Affordable” program has specific help for those desiring and upside down mortgage refinance.
The 3 general minimum guidelines for this program is that:
(1) you live in a 1 – 4 family home,
(2) have been current (not more than 30 days late) on your mortgage payments over the last year, and
(3) your current mortgage is either Freddie Mac or Fannie Mae guaranteed.
Get together your income and debt information and contact your lender. Tell the customer service rep that you are interested in speaking with someone about a “Home Affordable Refinance”.
If your current home loan does not qualify for the above program, your only other alternative is to pay down your current mortgage to a balance of at least 3.5% below the appraised value and refinance your home under the FHA program.
FHA allows a maximum 96.5% loan to value (LTV) and still has competitive interest rates and fees. For this to make good financial sense, you will need to be dropping your rate from its current level by a significant amount or be swapping out a variable rate loan for a fixed rate.
An important thing to consider is the fact that you may be creating an additional expense by refinancing. If your current loan was financed with a LTV of 80% or less, you probably aren’t paying PMI. PMI is Private Mortgage Insurance and is charged monthly on all loans originally bearing an LTV greater than 80%. Refinancing your debt with a higher LTV will require that PMI be added to your monthly loan payment. This addition is usually in the area of 1% of the monthly loan payment. Still, having the peace of mind of a fixing in your variable rate loan may be worth the added expense.
Approximately 20% Of Homeowners Owe More Than Their Homes Are Worth.
For some, an upside down mortgage refinance through the home affordable refinancing modification program will provide some relief. For many of us, though, careful budgeting and a patient outlook for a rebounding market will help us to create good habits for better times.