Traditionally finding a mortgage company that provided a no equity refinance loan at a competitive interest rate was difficult. If you have little to no equity in your home, you still may be able to refinance your home, even if you have damaged credit. This can help you to get a lower payment on your home and get back on your financial feet. Before signing documents it is very important that you learn exactly how to refinance a mortgage with no equity.
In some cases, you might even be able to refinance if you are not currently working. We recommend that you explore the options below to refinance if you have little to no equity. Not all banks, brokers or lenders offer a 100% mortgage, so it is crucial that you discuss your goals with a company that specializes in high LTV refinancing. Talk to the lending pros about your options to best refinance a mortgage with no equity or a high LTV.
VA Refinance Loans
The Veterans Administration guarantees VA mortgages for eligible military vets or active people enlisted in the US Armed Services. Many people consider the VA to offer the best refinance in the country for borrowers with little or no equity. Qualified borrowers can get a 100% refinance with no equity required. In many cases a borrower can refinance without even an appraisal. The VA streamline refinance is very popular with borrowers that bought their house with a VA loan but want to refinance because the market pricing drops below the level of their current interest rate.
Another option if you have no equity or negative equity is the Home Affordable Refinance Program or HARP. This program will allow you to refinance a loan that is from 105% to 125% of a home’s value. It would be hard to argue against Harp not being the best refinance loan for people who are underwater with their mortgage balance greater than there home value.
But note that not every loan will qualify for the HARP program. You cannot be on the path to foreclosure; any late payments in the last year will disqualify you.
Also, the loan has to be owned by Fannie Mae or Freddie Mac. If it is owned by FHA, you cannot qualify for this program.
The HARP program is not for everyone. It will depend upon how steadily you have paid your mortgage as well as your credit score. But for some home owners with little to no equity, HARP can save them hundreds of dollars per month.
FHA Mortgage Loans
The Federal Housing Administration or FHA guarantees private mortgage loans so that the lender will be paid back if you default. While you will have to pay for that guarantee with mortgage insurance each month, FHA mortgages can be a great deal for people with little to no equity.
FHA-approved lenders will make you refinance loans that they would not normally do, and the rates can be very competitive. You could potentially save hundreds of dollars per month.
If you have an FHA mortgage already with little to no equity, you can get an FHA Streamline Refinance. This program can be used even if you have negative equity in your home. Note however that it is not a foreclosure rescue program. If you have had the FHA loan for under 12 months, you must have made the payments on time.
And if you have had your FHA lien for longer than that, you must have made no more than a single late payment in the last 12 months. All payments must have been made within the month it was due for the last 90 days.
A streamline refinance cannot be used to pull cash out of your home; it is only for refinancing into a lower rate or into a different loan term.
The good news with a streamline refinance is that you will not have to go through the regular mortgage qualification process. As you already qualified for the loan before, you do not need to go through that process again.
FHA also does not require lenders to check your credit or your income again. You should note however that that some FHA-approved lenders could have tougher standards. If you think that you will only be able to qualify with the lowest FHA standards, we recommend that you ask lenders about non-credit qualifying streamline refinancing.
Mortgage rates are lower than they were a year or two ago, so you may well be able to refinance and save big with the FHA streamline refinance program.
Rate and Term Refinancing
Another option for borrowers who do not have an FHA insured loan and have 3.25% minimum equity, you can do rate and term refinancing.
Conventional lenders will want you to have 20% equity to do a refinance. But if you have equity of 3.5% to 5%, you will find that going to an FHA loan is your best bet.
An FHA rate and term refinance also is logical if you have equity but your credit score has cratered for whatever reason. A conventional lender could turn you down outright or may charge you a higher rate. You should try FHA’s rate and term program, but you should double check that you will still be paying less after you factor in the annual and up front mortgage insurance that FHA charges.
If you have a balloon payment due or a rate adjustment on your mortgage and you have poor credit and low equity, an FHA loan is often the only deal in town.
To qualify for the FHA rate and term refinance, you will need to show two years of employment. It also is ok to carry more debt; FHA will allow you to have a DTI ratio of up to 50% in some cases.
If you have limited equity in your home and need to refinance, you should carefully look to find the best refinance programs to see if they can help you. Many homeowners have found that one of these programs can help them to save each month.