When you owe more on your mortgage than your home is currently worth, you have a couple of refinancing options - either through your mortgage lender or a government-backed refinancing program.
First, talk to your mortgage lender. Many lenders would rather refinance an underwater mortgage than risk a homeowner going into foreclosure. Before talking to your lender, gather your loan documents, copies of recent payments and recent paystubs. When you talk to your lender, explain your personal financial situation, especially if you are struggling to make the monthly mortgage payments. If your lender is willing to refinance your mortgage, you may need to provide proof of your income, and/or proof of a financial hardship. You will also have to pay a mortgage loan origination fee, which varies depending on the specific details of your refinance and how much you owe on the loan.
Your second option is to refinance through a government-backed homeowner program - the Home Affordable Refinance Program. Through HARP you can refinance your underwater Fannie Mae or Freddie Mac mortgage and lower your payments, providing you meet certain criteria. For example, you must be current on your mortgage payments and have a loan to value ratio greater than 80 percent.
There is also a government-backed program for FHA loans, known as FHA Short Refinance. While your lender will have to approve your loan for this program, it will reduce your first mortgage to 97.75 percent or less of your home’s value. To qualify for FHA short refinance, you must be current on your mortgage payments and have above a 500 credit score.
You can find refinancing information specific to your own situation by contacting your mortgage lender or visiting the Making Home Affordable website.
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