How to Refinance a Home If the Value Is Upside Down

Every real estate market has good seasons and bad seasons. During the bad seasons, homeowners can find themselves upside down in their mortgage. This means that their home is not worth the amount of the home loan. You may be able to refinance, even in this instance, however.

Instructions

1. Check into government programs, such as President Barak Obama's Making Home Affordable plan. If you are less than 5 percent upside down and your mortgage is with Fannie Mae or Freddie Mac, you will be able to refinance. However, be aware that if you have a second mortgage, then you are disqualified.

2. Assemble needed documents to answer financial questions. If you don't qualify for assistance from a government plan, you need to talk to a bank. You need to be able provide proof of income. Bringing three to four consecutive check stubs should suffice. Bring a list of all your assets for the lender to see. Have your home appraised and bring proper documentation to the lender.

3. Pay the difference. When a mortgage crises occurs, lenders implement tougher policies for loans and refinances. You will more than likely have to pay the difference between what the home is worth and amount of your loan. It is most likely the only way you will be able to refinance your home if you are upside down.

Tips & Warnings

• The Making Home Affordable plan also has a provision in it that will allow homeowners to temporarily lower their loans to 31 percent of their monthly income if they cannot afford their payments and are also unable to refinance. This is only a temporary reduction designed to help homeowners get back on track. You may also be able to get your interest rate lowered to 2 percent.

References

• Bank Rate: Refinance Details