You can reduce the monthly payment on your mortgage if you can refinance your loan into a lower interest rate. However, most lenders will require you to have 20% equity at least for you to refinance these days. 100% financing home loans are available for the right borrower who meets the requirements from the right mortgage company.
For people who have little to no equity, you will need to do more work to be able to refinance into a 100% mortgage, but there are still ways that you can do it. Here are some steps to follow to refinance with no equity:
#1 Call Lots of Mortgage Lenders
There are many more lenders out there today than just after the financial crash. You should talk to several lenders and tell them that you want to refinance but you have no equity.
There are many lenders now who participate in the government’s Home Affordable Refinance Program, or HARP. This program was designed to rescue homeowners who have no equity or even owe more than their home is worth.
HARP is a great program that is helping out millions of homeowners. Qualifications are quite flexible. The only absolute requirement is that your original mortgage must be backed by Fannie Mae or Freddie Mac.
Not every lender participates in HARP but many do, so make sure you check with several mortgage lenders.
To qualify for HARP, credit should not be a major problem, but some lenders may have higher credit standards than others, so you will need to check with each lender to see what their credit requirements are for 100% mortgage programs.
#2 Refinance With FHA
If you have an FHA mortgage, you are in luck because FHA makes it easy for most homeowners to refinance. This is called the FHA Streamline Refinance program. You do not need to have equity in your home, and even if you have damaged credit and lost your job, you still may be able to refinance. FHA has been offering 100% mortgage financing for several decades. The streamline continues to be one of the most sought after 100 refinance program on the planet.
The FHA is the Federal Housing Administration, which is part of the Department of Housing and Urban Development. It backs home loans so that more mortgage lenders will offer mortgages to less than ideal borrowers.
The borrower pays for that guarantee by paying monthly mortgage insurance premiums, but the ease of refinancing a 100% loan insured by FHA makes those payments worth it.
Another big benefit of the program is that you do not need to have a current appraisal. A common problem with refinancing in the downturn was that the home was worth less than the person owed on it, so refinance was impossible. FHA allows you to refinance with the old appraisal so that you can still get out from underneath your old mortgage payments.
Just about anyone with an FHA mortgage can apply for a streamline regardless of their credit and employment situation. The only catch is that you need to have made all of your payments on time for the last year. The FHA Streamline program isn’t a foreclosure rescue.
#3 Rate and Term Refinancing
If you do not have an FHA insured mortgage and have at least 3.25% equity in your home, you could refinance your conventional loan into an FHA loan. This could be a good move for someone who has on time payments but has credit problems.
FHA has more relaxed standards on credit requirements. You would need to apply for an FHA mortgage pretty much as if you were buying a home all over again, but you will find that the paperwork requirements are not as stringent.
Some FHA lenders will let your credit score be as low as 500, but you would be better off if your credit score is 620 or higher.
$4 VA for a 100% Refinance
Once again military borrowers get the nod with exceptional opportunities that come from 100% financing from approved VA lenders. If you already have a VA mortgage, the streamline will make qualifying to seem pretty easy, because no appraisal is necessary. If you are eligible for a VA loan and have no equity in your home, I strongly suggest researching this 100% refinance.
#5 FHA Short Refinance Program
This program is for borrowers who do not have an FHA loan and owe more than their home is worth. The program will reduce what is owed on your home to reflect current market values.
The federal government will request that your current loan holder reduce what is owed by 10% or more so that the new mortgage is no higher than 97% of the home’s current worth.
If you have two loans on your home, you might be able to get the second mortgage totally eliminated. If not, the maximum LTV on the new loan cannot be above 115% of the home’s current market value. This 100 mortgage refinancing option is nothing short of amazing.
The only hang up with this refinance program is that you have to be current on all payments to qualify. But most lenders do not want to write down loans that are not late, so it can be hard to get approval for an FHA short refinance in some cases.
Getting Some Perspective
If you want to refinance and have little to no equity, or even negative equity, all is not lost. There are many 100% refinance programs available today to help you to keep your head above water and refinance. The main thing to do to qualify for 100% refinancing is keep being persistent! If you are turned down with one lender, remember that there are many lenders out there that participate in the above programs. If you continue to contact lenders, you probably can find one that will help you with your mortgage situation.