9 Tips for Refinancing Your Underwater Mortgage

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If your home is “underwater” — that is, worth less than the mortgage amount — you probably know that it is difficult, and sometimes impossible, to refinance. But if your home loan has a high interest rate, it’s definitely worth exploring whether you can get a refi to bring your payments down.

There’s some urgency. Not only could interest rates rise further with no warning, but the Obama-era Home Affordable Refinance Program (HARP) expires at the end of September. The program created by the Federal Housing Finance Agency in 2009 helps homeowners refinance into more affordable mortgages.

A replacement program for HARP is in the works. The federal agency in charge (FHFA) promises “streamlined” refinancing for borrowers with little or no equity. Like HARP, it will require no minimum credit score, no maximum debt-to-income ratio and no maximum loan-to-value ratio. Even appraisals may not be required in some cases. But no details have been released, and the fate of individual government programs and plans are uncertain in the new Trump administration, to say the least.

So, submitting an application to HARP is a good backup plan, even if a better option does eventually materialize.

Here’s how to find your options for refinancing if you are underwater:

1. HARP could help

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Many people think that HARP, begun in response to the housing crisis, has already expired. Not so! The program had been extended twice and was scheduled to expire at the end of last year. But the FHFA recently issued a third extension — probably the last one — until Sept. 30, 2017. At least 323,000 mortgages are still eligible for refinancing under HARP, The New York Times reported last fall.

HARP’s rules are generous. Read the FAQs. Get moving, though, to get an application in before the last-minute rush.

2. Don’t assume you are ineligible

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Assume nothing. Maybe you could not get a HARP refinance before. Or you had a bad experience trying to work with your lender. Or you missed payments in the past or have late payments on your record. Or you think HARP sounds too good to be true. Try anyway.

Says the HARP website:

HARP has been significantly enhanced since it launched in 2009. The program now requires less documentation and has simpler guidelines, all designed to approve more loans.

3. See if you qualify

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To qualify, your mortgage must meet the following HARP eligibility requirements:

  • It must have originated on May 31, 2009, or before.
  • It must be owned or guaranteed by Fannie Mae or Freddie Mac. (Use these phone numbers and links to find out. Check both links.)
  • It must have a loan-to-value ratio of 80 percent or above. (Find this ratio by dividing the mortgage loan amount by the property value. Or use this Fannie Mae calculator. Example: a $150,000 property value with a $155,000 mortgage loan has a LTV of 103 percent.)
  • You must have no late payments in the past six months.
  • You must have no more than one late payment in the previous year.

4. No need to deal with your mortgage company

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You don’t have to refinance with your current lender. See this HARP site for links to approved HARP lenders.

Once a lender determines that you are eligible for a HARP refi, they’ll help you apply.

5. Even so … check with your mortgage company

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However, if your mortgage is not owed by Fannie Mae or Freddie Mac, your best next move is to contact your mortgage company and ask for help refinancing.

Even if you have had a bad experience dealing with the company in the past, give it one more try. A lower monthly payment could make a world of difference for your finances.

Here’s an alphabetical directory of contact numbers for mortgage companies.

6. Talk with a housing counselor

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You’re not alone with this problem. The real estate crash retains a vicious grip in many parts of the country. Amidst soaring home values on the coasts and elsewhere, 10.5 percent of homeowners with a mortgage, on average — that’s 5 million homes — were underwater in late 2016, reveals a recent Zillow study. See a state map of negative equity at RealtyTrac. The worst case is Nevada, where 21.5 percent of homes were still in negative equity in the third quarter of 2016.

Get help. Federally certified housing counseling experts are available 24/7 at 1-888-995-4673, the Homeowner’s HOPE hotline of the Homeownership Preservation Foundation.

“They will help you understand your options, design a plan to suit your individual situation and prepare your application,” according to Making Home Affordable, a program of the U.S. Department of the Treasury and Department of Housing and Urban Development.

7. See if your home is truly underwater

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Don’t assume you still are underwater. Rising prices are pulling many properties into the black. Last year 1.2 million homes went from negative to positive equity, says a Zillow study.

You might qualify for refinancing without government help. To learn your loan to-value ratio, get a solid estimate of your home’s current market value. Your resources include:

  • Real estate agents: Agents will come to your home to conduct a comparative market analysis. (Read up on finding and interviewing agents.) This is a free service, done by agents to market themselves to prospective sellers. If you want to examine all your options — selling as well as refinancing — it’s a good way to get an estimate.
  • Recently sold homes listings: Compare your home with others like it that sold recently in your immediate neighborhood. Look for properties that sold within the last three months and that are as much like your home as possible. Find sales that are similar in size (square footage, beds and baths), amenities, lot size, condition, construction quality, age, and location. Three sites for researching just-sold homes:

Avoid relying on:

  • County property tax assessments: These are for tax purposes, often are not current, and are not meant to reflect current real-estate market values.
  • Online real estate site’s estimates: Computer-generated estimates on real estate sites can be far off the mark.

8. Keep making those on-time payments

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If you hope to use the new refinance program for distressed mortgages, be sure to stay current on your mortgage payments. New missed or late payments could hurt your eligibility.

9. Bone up on the basics of refinancing

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Refresh your knowledge before you start shopping for a refi by reading “Refinance Your Home Before It’s Too Late.”

Are you in the market for a new mortgage? Share lessons you’ve learned about mortgages in comments below or on our Facebook page.

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