Refinancing options for underwater borrowers

 

Need to lower your monthly mortgage payment? Or maybe you want to switch from an adjustable-rate mortgage to a fixed-rate mortgage. For whatever reason, this page can help guide you through the options for refinancing your underwater mortgage. That's right. Even if you owe more than your home is worth, there are programs to help nearly all types of borrowers. (See rates of negative equity in your neighborhood in chart on right.)

What is an underwater mortgage?

It simply means that as a homeowner, you owe more on your mortgage than your house is worth. For example, your home is worth $250,000, but you owe $300,000 on the mortgage; that means you are underwater, or upside-down on your mortgage. This is also referred to as negative equity.

Why is refinancing beneficial?

For underwater borrowers, refinancing simply means getting a new mortgage to replace your old one with the goal of reducing monthly payments, lowering your interest rate, or changing your loan program from an adjustable rate mortgage to a fixed-rate mortgage. In most cases you do not need to have equity in your home to refinance if you qualify for one of the specialized refinancing programs that have become available over the past several years. Learn more

Can I qualify for refinancing?

For many borrowers there are now options to refinance your current or investment home no matter how underwater you are. Find out if you are eligible by following the three steps below.

Which refinancing program am I eligible for?

Step 1|Are you up to date on your mortgage payments?

Yes

Continue to Step 2

No

If you have a VA loan continue to Step 3. Otherwise, contact your current servicer. You are not currently eligible to refinance under any of the programs specifically designed for underwater borrowers. However, you may be eligible for a loan modification or another program. In most cases, your current servicer is the company you last submitted your mortgage payment to.

Step 2|Who backs your mortgage?

Most mortgages are backed by organizations such as Fannie Mae, Freddie Mac and the FHA. These organizations insure the owner of the mortgage in case the mortgagor — you — defaults on payments. You do not write your mortgage check to the mortgage backer. You send it to your servicer, which is the company you call if you have questions about your loan.

Fannie Mae or Freddie Mac

The majority of all home loans are backed by the government sponsored enterprise's (GSE) of Fannie Mae or Freddie Mac. Click the appropriate link to find out if your loan is owned or guaranteed by Fannie Mae or Freddie Mac.

Federal Housing Administration (FHA)

The FHA backs the vast majority of all loans not already backed by Fannie Mae and Freddie Mac. You were likely informed that you had an FHA loan during the loan process and at the closing of your current loan.

However, if you are unsure whether you have an FHA loan, look at the following documents:
  • Check your monthly statement to see if you have a mortgage insurance premium (MIP). This is what the FHA calls its mortgage insurance — so if you see it on your statement, you have an FHA-insured loan; or
  • Check your closing docs and find your closing statement (called a HUD1). Look in the top-right corner on the first page and check for a HUD 13-digit case number in this format: 000-0000000-000. If you have a HUD case number, then you have an FHA-insured loan.
  • If you're still uncertain, call your lender or servicer.
Veterans Affairs (VA)

VA loans are only for military veterans and make up a small number of home loans originated. You likely were informed that you had a VA loan during the loan process and at the closing of your current loan.

United States Department of Agriculture (USDA)

United States Department of Agriculture home loans are available for those living in designated rural communities with a moderate-to-low income. You were likely informed that you had a USDA loan during the loan process and at the closing of your current loan.

Other/don't know

If you are unsure who backs your mortgage, contact your loan servicer.

Step 3|Find the refinancing program that applies to your loan

If your loan is backed by Fannie Mae or Freddie Mac:

Program
Home Affordable Refinance Program (HARP)

General eligibility guidelines
  • Your current loan must have been sold to Fannie or Freddie before June 1, 2009.
  • You must not have completed a HARP refinance since June 1, 2009.
  • You will not have made a late payment within the past 6 months.
  • You will not have made more than one 30-day late payment in the past 7-12 months.
  • Your current loan must fall under the conforming loan limits. In most cases this amount is $417,000 in the continental U.S. but can be as high as $625,500 in higher cost areas such as New York City or Los Angeles.
Next steps
  • Contact your current loan servicer to verify your eligibility.
  • Shop around for the most competitive mortgage rates and fees. Make sure to check with your current servicer and Zillow Mortgage Marketplace, the only comparison shopping site for HARP loans for underwater borrowers.
  • For more info visit HARP.gov
If your loan is backed by the Federal Housing Administration (FHA):

Program
FHA Streamline Refinance

General eligibility guidelines
  • You will not have made a late payment in the past 12 months.
  • You will not have completed an FHA Streamline Refinance in the prior 6 months.
  • Contact your current loan servicer to verify your eligibility.
  • Shop around for the most competitive mortgage rates and fees. Make sure to check with your current servicer and Zillow Mortgage Marketplace, the only comparison shopping site for FHA Streamline Refinance loans for underwater borrowers.
If your loan is back by Veterans Affairs (VA):

Program
Interest Rate Reduction Refinancing Loan (IRRRL)

General eligibility guidelines
  • You must refinance into a loan with a lower interest rate unless you are refinancing into a fixed-rate mortgage from an adjustable-rate mortgage (ARM).
  • Shop around for the most competitive mortgage rates and fees and make sure to check with your current servicer.
If your loan is back by the United States Department of Agriculture (USDA):

Program
Single Family Guaranteed Rural Refinance Pilot

General eligibility guidelines
  • You will not have made a late payment in the past 12 months.
  • Your current mortgage rate must be 100 basis points higher than the refinance rate. Example: If your current interest rate is 6 percent, you would need to refinance into a rate that is equal to or lower than 5 percent.
  • Make sure you contact your current servicer or the USDA Rural Development Office.
Note

This is a pilot program and is currently only available in AL, AR, CA, FL, GA, IL, IN, KY, MI, MS, NV, NJ, NM, NC, OH, RI, SC and TN.

Helpful tips

Underwater homeowners should contact a minimum of one other lender aside from their current bank and/or servicer. There may be large differences in rates and fees offered by current servicers and other lenders so it pays to shop around.

Just because one lender tells you "no" does not mean that you cannot refinance. Continue to shop around and reach out to other lenders. Each lender has its own guidelines that may be more restrictive than the government guidelines.

 
 
 
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