If you are upside down on your mortgage, meaning you owe more than your home is currently worth, you may be wondering if you can still refinance. The good news is that it is possible to get an underwater mortgage to refinance.
There are a few things to keep in mind when you are trying to refinance an underwater mortgage. First, you will likely need to have good credit in order to qualify for a lower interest rate. Second, you may need to bring some money to the table in order to get a new loan with a lower interest rate.
If you have good credit, you may be able to find a lender who is willing to give you a lower interest rate on your refinanced mortgage.
Table of Contents
• Underwater Mortgage Definition
• What Happens If My House Value Goes Down
• High LTV Mortgage
• Freddie Mac Enhanced Relief Refinance
• USDA streamline Refinance
• VA Streamline Refinance
• FHA Streamline Refinance
• What To Do If Your House Is Underwater
• Selling a Home With Negative Equity
Underwater Mortgage Definition
An underwater mortgage is a home loan with a higher principal balance than the property is worth.
This type of situation often occurs when a borrower takes out a mortgage when housing prices are high, and then experiences a decrease in the value of their home.
For example, if you bought your home for $200,000 with a $180,000 mortgage, and the value of your home then decreased to $150,000, you would have an underwater mortgage.
This can happen for a number of reasons, such as a decrease in the overall value of homes in your area, or if you made very little down payment on your original mortgage.
What Happens If My House Value Goes Down
If the value of your home decreases and you have an underwater mortgage, you may struggle to sell your home or refinance your mortgage. This is because most lenders will only approve a new loan if the value of the property is equal to or greater than the amount of the loan.
However, there are some options available for borrowers with an underwater mortgage who need to refinance.
High LTV Mortgage
If you owe more than your home is currently worth, you may be eligible for the High LTV Mortgage Refinance Program. This program is designed for borrowers who are struggling to make their mortgage payments, but who have good credit and a loan-to-value ratio of 125% or less.
Under this program, you may be able to refinance your mortgage into a new loan with a lower interest rate and monthly payment.
In order to qualify, you must be:
- Current on your mortgage payments
- Have a good payment history
- Have a loan-to-value ratio of 125% or less
- Have a credit score of 580 or higher
If you meet these qualifications, you may be able to refinance your mortgage through the High LTV Mortgage Refinance Program and save money on your monthly payments.
Freddie Mac Enhanced Relief Refinance
If you have a Freddie Mac loan, you may be eligible for the Freddie Mac Enhanced Relief Refinance program. This program is designed to help borrowers who are struggling to make their mortgage payments, but who have good credit and a loan-to-value ratio of 80% or less.
Under this program, you may be able to refinance your mortgage into a new loan with a lower interest rate and monthly payment.
In order to qualify, you must:
- Be current on your mortgage payments
- Have a good payment history
- Have a loan-to-value ratio of 80% or less
- Have a credit score of 620 or higher
If you meet these qualifications, you may be able to refinance your mortgage through the Freddie Mac Enhanced Relief Refinance program and save money on your monthly payments.
USDA Streamline Refinance
If you have a USDA loan, you may be eligible for the USDA streamline refinance program. This program is designed to help borrowers with underwater mortgages refinance their loans to a lower interest rate.
To be eligible for the USDA streamline Refinance program, your mortgage must:
- be a USDA direct or guaranteed loan
- have been made before October 1, 1987
- have an LTV ratio of 80% or less
- You must also be current on your mortgage payments, with no more than one 30-day late payment in the last 12 months.
If you meet these criteria, you may be able to refinance your USDA loan through the USDA streamline refinance program.
VA Streamline Refinance
If you have a VA loan, you may be eligible for the VA streamline refinance program. This program is designed to help borrowers with underwater mortgages refinance their loans to a lower interest rate.
To be eligible for the VA streamline Refinance program, your mortgage must:
- be a VA-backed loan
- have been made before March 1, 1988
- have an LTV ratio of 80% or less
- You must also be current on your mortgage payments, with no more than one 30-day late payment in the last 12 months.
If you meet these criteria, you may be able to refinance your VA loan through the VA streamline refinance program.
FHA Streamline Refinance
If you have an FHA loan, you may be eligible for the FHA streamline refinance program. This program is designed to help borrowers with underwater mortgages refinance their loans to a lower interest rate.
To be eligible for the FHA streamline Refinance program, your mortgage must:
- be an FHA-insured loan
- have been made before June 1, 2009
- have an LTV ratio of 85% or less
- You must also be current on your mortgage payments, with no more than one 30-day late payment in the last 12 months.
If you meet these criteria, you may be able to refinance your FHA loan through the FHA streamline refinance program.
What To Do If Your House Is Underwater
If your house is underwater and you are struggling to keep up with your monthly mortgage payments and are not able to refinance. You can rent out rooms in your house to help cover your mortgage payments.
Selling your house or doing a short sale is also a good option. A short sale is when you sell your house for less than what you owe on the mortgage and the lender agrees to accept the reduced amount as payment in full.
This option should only be used as a last resort because it will damage your credit score and you will still owe money to the lender.
Selling a Home With Negative Equity
If you live in Colorado and are struggling to keep up with your mortgage payments or are facing foreclosure, we can help. Colorado Cash Buyers buy houses as-is for cash. We can close in as little as 7-28 days. Give us a call today to see how we can help you!