How to Refinance When You Are Upside Down

Refinancing an upside down mortgage is difficult.

Refinancing an upside down, or underwater, mortgage is not an easy task. Most mortgage companies require some equity in the home to qualify for refinancing. If you are truly upside down, you have what is called negative equity, meaning that you owe more than the home is worth. Some homeowners qualify for federal programs that can help.

Things You'll Need

• Proof of income
• Proof of financial hardship

Instructions

1. Calculate the fair market value of your home. Deduct that value from the balance on your mortgage to determine how far underwater your mortgage is. You may need an appraisal to ascertain the value of the property. Some lenders will consider refinancing your home loan if it hasn't gone too far. However, if your mortgage exceeds 125 percent of the fair market value of the home, not many options are available.

2. Apply for a loan under the Home Affordable Refinance Plan (HARP). You may qualify if Freddie Mac or Fannie Mae own your mortgage, your mortgage is no more than 125 percent of the fair market value, and you have no delinquent payments within the last 12 months. A HARP loan will not reduce the amount you owe on the home, but it will make monthly payments and interest rates more affordable.

3. Apply for FHA Secure refinancing, if your loan is not an FHA loan, whether you are current or delinquent on an adjustable rate mortgage. Be prepared to show that your delinquency is due to rising interest rates and that you have reliable income and are able to make the payments. Delinquent payments are not an automatic disqualification. You must also have a credit score worthy of a mortgage. Any conventional mortgage qualifies for FHA Secure refinancing.

4. Request a loan modification through the Home Affordable Modification Program (HAMP). Although this is technically not a refinance, it can lower your payments for up to 60 months. You must prove hardship that puts your home in danger of foreclosure and present proof of income. Visit the Making Home Affordable website or contact your lender to begin the process.

Tips & Warnings

• Speak with an attorney or mortgage professional before agreeing to any new terms or signing loan documents.

• The HARP program is set to expire June 30, 2011.

References

• Federal Housing Finance Agency: FHFA Extends Refinancing Program by One Year
• Federal Housing Administration: FHA Secure Refinancing
• Bankrate: Refinance Options When You're Underwater
• Making Home Affordable: Request a Home Affordable Modification