Can I refinance with low home equity?

Posted by  on Nov 21, 2012

Q: I've bought my home with very little money down, near the height of the housing boom. I've been frustrated watching the value of my house decline almost as fast as I've been able to pay the mortgage down. As a result, I've been told that I don't have enough equity to refinance, because loan standards are tougher these days. Is there a type of refinance loan I can qualify for under these circumstances?

A: Your best bet may be to look into HARP, which is the federal government's Home Affordable Refinancing Program. This is a special program to help people with depressed property values refinance, but there are some restrictions. Here is a basic checklist to help give you an idea of whether or not you might qualify. Basically, if you answer yes to all of the following questions, there is a reasonable chance that you might qualify:

  • Is the loan guaranteed by Fannie Mae or Freddie Mac? Both of these organizations have look-up tools where you can determine if your loan is eligible for HARP.

  • Would this be your first time refinancing under HARP? Based on your description of the situation, it doesn't sound like you've refinanced previously.

  • Would your new loan represent at least 80 percent of your property's value? From what you describe, if your property's value has been declining almost in step with your paying down principal, this seems likely.

  • Are your payments up to date, and do you have a good payment history for the past 12 months? If not, then you might just have time to get up to date and improve your payment history -- the program expires at the end of 2013.

If you think you are eligible for HARP, start by contacting your current mortgage servicer, to see if they are participating in the program. However, even if they are, you might want to get competitive mortgage quotes to see which lender is offering the best terms under the program.

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