With the recent drop in property values in many cities around the county combined with the large number of adjustable rate mortgages coming due some homeowners in America are in a heap of trouble.

That trouble comes when they try to refinance when a house is worth less then they owe on the mortgage. Although is seems like a major problem there are ways to save your home when it is worth much less then you still owe on the mortgage. The next few paragraphs will cover the two most popular methods used to help home owners in this situation.

How To Save Your Home

The best option for many homeowners is to try and work out a mortgage modification with their mortgage holder. This process basically involves the note holder collecting financial documents to make sure the borrowers can still pay the loan without causing financial difficulties. This is just like a normal loan application.

Then based off the financial worthiness of the borrower the lender may choose to modify the adjustable rate mortgage into a fixed rate or temporarily stop the adjustment of the mortgage for a set period of time.

Although there is no guarantee that the lender will do this you do have a down housing market on your side. Lenders know they will be sitting on your house for many months and more then likely lose money when they sell it. They would much rather keep you in the home so they can protect their investment in the property and maintain a good bottom line.

Government Programs

Your second option is to use the new FHA Secure program offered through the federal government. The FHA Secure will let homeowners refinance up to 97.75% of their homes current appraised value, even with late payments.

The only catches to the program are the mortgage has to have been paid on time and the late payments can only have occurred after the mortgage rate adjusted.

Your current lender must also agree to dismiss any balance on the loan or agree to hold the remaining balance in a second mortgage position. Aside from these differences qualifying for the FHA Secure is no different then qualifying for any other FHA loan.

If you know your home is worth less then you owe and you have an adjustable mortgage coming do it is your best interest to examine one or both of these solutions before your payment becomes unmanageable and your credit rating begins to suffer.


Reproduced with permission from Darin Sewell. To read more articles by Darin Sewell, click here. Copyright 2008 Darin Sewell. All rights reserved worldwide.


4 thoughts on “How To Refinance When My Home Is Worth Less Than I Owe On The Mortgage

  1. Good article and holds good information.

    Two Comments!

    If you are looking for a loan modification be prepared for your lender to give you a bit of a run around and know that there are some additional options you should explore when it comes to a loan modification. More times than not the lender is willing to do more for you but most homeowners don’t know what questions to ask and end up in the same loan for extended periods or “Freeze” versus an actual change of loan structure.

    Second, FHA is available for more clients outside of their secure program and can be used no matter what the loan-to-value as long as you have two mortgages and the second is flexible you can get a FHA loan.

    This is kinda my thing so I hope to add not take away from your material! Happy Mortgage Days!

  2. I wonder what the new FHA government bailouts are going to do to lenders and loan modifications. Because not everyone will qualify for the new bailout and now lenders won’t be as nervous about foreclosures now they will probably let people lose their homes. Plus local communities are going to get money to buy foreclosed houses that will make the lenders even more reluctant to modify loans.

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