How to Get Refinanced on an Upside Down Home
Having a high interest rate, an adjustable-rate mortgage or an interest-only home loan often results in higher payments. In an effort to keep their home loan affordable, many homeowners consider a mortgage refinance. Unfortunately, falling house values can result in an upside-down loan, in which borrowers owe more than their home's worth. This situation limits a borrower's ability to refinance his mortgage. However, there are ways to get around this hurdle and obtain a refinance.
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Instructions
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Increase your personal FICO score. When applying for a mortgage refinance, you're applying for an entirely new home loan. The lender checks your credit score and verifies employment and income. To qualify for a low rate, you'll need an acceptable credit score. Pull your credit beforehand and consider ways to improve a low score (pay down debts, pay bills on time, etc.)
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Find a lender. You can choose to refinance with your present lender. This is ideal for people with low credit scores. Since you have a history with the lender, they may overlook a few credit mistakes. However, your present lender may not offer the best interest rate. For this reason, it's also wise to use a mortgage broker and obtain at least three no-obligation loan quotes.
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Save money for settlement costs and other fees. As with the original mortgage loan, you'll have to pay an appraisal fee, application fee, credit report fee and other closing costs. Your free loan quote estimates the closing costs.
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Bring cash to closing. Once you've been approved for a refinance, you need to schedule a closing. Because you have an upside-down mortgage loan, you'll need to bring cash or a down payment to the closing table. Most mortgage lenders will not refinance a home for more than it's worth. To obtain a refi, you'll have to pay the difference. For example, if you currently owe $200,000, but the home's only worth $190,000, you'll have to pay $10,000 out-of-pocket. You can use personal savings, money from a 401K or borrow the money from family.
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