How To Refinance A Mortgage With No Equity

Before you try to find out how to refinance a mortgage with no equity, you may want to take a look at the costs that are involved. When you refinance, you have closing costs that will need to be paid, and since you have no equity in your home, you probably will not be able to include the closing costs in your loan amount. This means you will have to pay them out of pocket, which may be an issue if you are strapped for cash.  

1. Find out what the current refinance rate is compared to your existing mortgage rate. If the new rate is not much less than your existing loan rate, you may want to just leave your mortgage with no equity as is. There are some government programs available if your loan is serviced by Fannie Mae or Freddie Mac, with certain qualifications that need to be met.
2. Unless your credit rating is solid, your lender may not approve a refinance since you have a mortgage with no equity. Lenders will often work with a borrower that has some credit issues if they have built-up equity in their home. If you have less than 20 percent equity in your home, and your credit is damaged, most lenders will not refinance the loan. If you are able to buy private mortgage insurance, you may be able to refinance a mortgage with no equity, but the cost of the insurance premium may nullify the amount you save on your new mortgage payment.
3. If you only want to lower your mortgage payments, ask your lender if a mortgage loan modification is possible. If you are unable to refinance a mortgage with no equity due to your lender’s guidelines, a modification should be able to lower your payments. Many times, there are little to no closing costs required to modify your loan, and some lenders will do a modification for no charge at all. You will have to show the reason for your current hardship, in order to be considered by your lender for a modification.
4. If you are still unable to get your mortgage payment reduced, check online for other lenders. Some will make a mortgage with no equity, but their fees can sometimes be intrusive. Make sure to thoroughly analyze all of the costs charged by the lender, in order to determine if the refinance is worth doing.