My first mortgage is only about 70% of my home's value, but my second mortgage plus my first mortgage is a bit more than my home is worth. Can I refinance my first mortgage if I leave my second mortgage alone?
You may be able to refinance one or both of your loans. Mortgage refinance lenders and programs have different requirements for the combined loan-to-value (CLTV) of your mortgages--the amount of all mortgages loans compared to your home's value. Here are your alternatives.
1. HARP refinance
While normal guidelines limit refinances to a CLTV of 95%, if your mortgage is owned by Freddie Mac or Fannie Mae, you could qualify for a Home Affordable Refinance Program. The lender holding your second mortgage will have to agree to subordinate it to the new first mortgage (which just keeps it in the same junior position).
2. Streamline refinance
Your current mortgage lender may have no problem refinancing you as long as the lender with the second mortgage is willing to subordinate it to the refinanced first mortgage.
3. FHA refinance to 97.75%
FHA allows you to refinance your first mortgage and doesn't care what your CLTV is as long as the second lender is willing to subordinate its lien. But what if the second mortgage lender is uncooperative? FHA will refinance you out of your non-FHA loans into an FHA mortgage up to 97.75% of your home's value. So if your CLTV is close to 100%, you might want to bring some cash to the closing table, pay the loan balance down, and replace both loans with a single FHA mortgage at a nice low rate.
4. Mortgage modification through HAMP
If you can't refinance because your lenders are uncooperative or you don't qualify, consider applying for a mortgage modification through the Home Affordable Modification Program (HAMP) or through your lender's private program. You don't need good credit, and if your income is insufficient to qualify for a refinance, then your lack of income may qualify you for a modification.
The loss of home value in many parts of the country has put a lot of people in your situation. Fortunately, you do have options for lowering your mortgage rate.