Refinancing with NO Equity

Today there are many homeowners who could benefit from the great low rates but feel they can not because of a lack of equity. Homeowners should know there are many options available to them for refinancing without equity. Depending on the type of the loan you have there are options to look at.


Homeowners with FHA and VA loans.

FHA and VA offer refinancing options for homeowners without having to go through the whole loan process. FHA offers the FHA Streamline Refinance. The streamline lets the homeowner refinance the balance of their current FHA loan into a lower rate loan without an appraisal, without proof of income or employment. Current Home Values do not matter!! Customer who can drop their rate by .5% or more should look into this option. Most lenders do not charge any origination fees and most times cover other closing cost. FHA borrowers will receive a refund of the previous up front mortgage insurance and on the new loan normal up front mortgage insurance will be charged. VA offers the Interest Rate Reduction Refinance Loan (IRRRL). This is very similar to the FHA streamline. The main difference is the VA IRRRL only charges a .5% funding fee.


Homeowners with 80/20 combo loans

Again we will take advantage of a FHA loan to refinance the 1st mortgage and leave the 2nd mortgage where it is. Many homeowners purchased homes in the past with the 80/20 combo loan to avoid mortgage insurance. Many of these 80/20 combo loans had adjustable 1st mortgages and a fixed rate 2nd mortgage. Since FHA allows for you to refinance the 1st mortgage up to 97% Loan to Value and still have a 2nd mortgage, this is a wonderful solution for homeowners. Your home does not need to appraise high enough to cover the 2nd mortgage. Here is a common example.

Homeowner has an 80/20 combo loan. They purchased the home for $100,000. Their 1st mortgage is for $80,000 and the 2nd for $20,000. Their rate for the 1st mortgage was 7.00% adjustable and the 2nd was 8% fixed. Today their home will only appraise for $90,000. We would refinance the 1st mortgage balance into a fixed rate at 5.125% today and ask the 2nd mortgage to subordinate their 2nd mortgage. In simple terms allow us to redo the 1st mortgage with out paying off the 2nd mortgage. If the 2nd mortgage company will allow this, it will be the best solution to having a high rate adjustable 1St mortgage. Since the 2nd Mortgage is a fixed rate and there is no equity in the property to pay off the 2nd mortgage, it is not important to refinance the 2nd mortgage as it is the 1st mortgage.


Before you give up on refinancing because you don’t think you have equity, call your loan officer and ask them about these options and other options that may be available to you. It may save you thousands of dollars in interest.