How to Refinance an Upside Down Mortgage

Need to know how to refinance an upside down mortgage? Since the real estate market has been hit, it has made many people ask the same question: how do you refinance an upside down mortgage? As real estate values have gone downhill it has eroded the value of so many homes that the government has actually stepped in and offered a way to refinance an upside down mortgage. Here are some tips on how to use the Making Home Affordable program and refinance an upside down mortgage.

1. Contact the primary lender on the mortgage. One of the caveats of the government program is that the refinance must be done through the lender holding the first note.
2. Determine if the home is an FHA loan. In order to refinance an upside down mortgage utilizing the Making Home Affordable program, the loan must be an FHA loan. This means that it is backed by the Federal Housing Authority. The primary lender will be able to tell you over the phone.
3. Ask about the value of the home. The primary lender has access to an FHA website which instantly determines home values. Once the lender inputs the square footage and zip code of the home, then an FHA qualified value pops up.
4. Determine if the value is 125 percent of the first mortgage. In order to refinance an upside down mortgage through this program, the refinance amount must be no more than 125 percent of the home's value.
5. Choose a loan program. The Making Home Affordable program only offers 30-year loans as they are trying avoid the one, three, five and seven year adjustable rate mortgages that got everyone into this mess in the first place. Choose the desired loan option.
6. Lock the interest rate. The lender will have the buyer complete some initial paperwork which gets the ball rolling and locks the terms of the loan into place.
7. Provide the required financial documents for the lender. The lender will need to verify credit reports, get copies of bank statements and get a home insurance policy before proceeding with the refinance.
8. Close the loan by paying any points or fees. Depending on the loan program which is chosen, there will be a varying amount of points and associated fees due upon the closing of the loan. Pay that money and you are done. You have successfully completed a refinance on an upside down mortgage.

If the FHA home value comes in lower than you think the home is worth, the lender may order an appraisal to see if the home is valued higher. This higher value might get better terms on the refinance. If you don’t qualify for a refinance through the Making Home Affordable program, they also offer a loan modification service for those owners who are having financial hardships. Warning: any associated junior loans on the property must subordinate to the new loan. Some state-issued home buyer aid programs will not subordinate. This is not a normal occurrence, but can appear for home buyers who used state grants or loans such as a first time home buyer program down-payment assistance to purchase their home.

Resources:

Making Home Affordable