Can’t you refinance if you’re underwater on your home mortgage loan?

underwater on your home mortgage loan

Are you a struggling homeowner who has recently found out that your mortgage balance exceeds the current property value?

If answered yes, you must be aware of the futility of a refinance!

You need to have some equity in your home in order to refinance your home mortgage loan and when you don’t have that, your options for mortgage refinancing becomes limited and restrained. In fact majority of the mortgage lenders are of the opinion that one should have at least 20% equity in their home in order to qualify for a refinance loan.

However, being a struggling borrower, you shouldn’t give up hope as there are some other options too that can help you out. Check out the options that you may take resort to when you want to refinance your home loan even though being underwater on it.

Home Affordable Refinance Program (HARP): If you’re underwater on your home mortgage loan, you may qualify for the federal Home Affordable Refinance Program (HARP) but you may have to meet certain particular criteria. The program will allow all the qualified struggling borrowers to refinance a home loan that is from 105%-125% of the total value of the home. However, not all underwater loans will be able to qualify for such loans. Firstly, the homeowner should not be treading on the path of foreclosure and any missed payments since the last 1 year will disqualify you from the eligibility criteria of the HARP. Secondly, either Fannie Mae or Freddie Mac should own the loan and only then can you qualify for refinancing under this federal program. The extent up to which you can be able to take advantage of the HARP will always depend on your repayment ability and the credit score that you have.

Home Affordable Modification Program (HAMP): If you have an underwater mortgage and you’ve also defaulted on the mortgage payments, you may qualify for the HAMP or the Home Affordable Modification Program. You just need to demonstrate extreme financial hardship that is barring you from making timely payments on your mortgage. Here too, the mortgage should be owned by Freddie Mac or Fannie Mae. Through this particular program, the government will offer incentives to the mortgage lenders to process the modifications but the approval power rests with the lender. However, this is not a refinance program, but you can alter the terms and conditions of the loan program in order to make repayment easier.

Therefore, when you’re wondering about the possibilities of a mortgage refinance program despite being underwater on your mortgage, you may qualify for the above mentioned options. Perform a reality check and negotiate with your mortgage lender so that you’re able to know where you exactly stand financially and thereby be able to take important financial decisions about refinancing your home mortgage loan. 

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