In the past, it was challenging to find a mortgage lender that would allow you to refinance your mortgage at a reasonable interest rate if you had little to no equity. If you have no equity, it means that you have little stake in the property if you were not to pay the mortgage. Thus, most lenders would not help you.
However, in 2020, you may be able to refinance a mortgage with no equity, even with poor credit. This can assist you in getting your mortgage payment lower and getting you back on your feet financially. In some cases, you may be able to do a refinance with no equity even if you do not have a job now.
If you are in this circumstance, there is hope for you in 2020! Please explore the no equity mortgage refinance options below. But not every lender will offer these programs, so you should look for lenders whose business focuses on high LTV refinance loans.
If you have no equity or even negative equity, you may be able to qualify for the Home Affordable Refinance Program or HARP. This program allows people with Fannie Mae or Freddie Mac-backed loans to refinance even if the loan is from 105% to 125% of the value of the home. This is the best no equity refinance option out there for those who are in a negative equity situation; this is also referred to as ‘being underwater’ on your mortgage.
Not every loan will qualify for this program; as noted above, you must have a loan backed by Fannie Mae or Freddie Mac. You also cannot be behind on payments; this is not a foreclosure rescue program. Any payments in the last year will mean you are not eligible.
HARP has helped hundreds of thousands of people to refi with no equity, but you need to have paid your mortgage faithfully. Your credit score also will matter from lender to lender, so check around to see if you meet their criteria.
The HARP program is most likely going to be extended in 2017, so there still should be opportunities to do this type of refi for those with a Fannie or Freddie backed mortgage.
The FHA is a federal agency known as the Federal Housing Administration. It guarantees some private mortgage loans that ensure that the lender will be paid if you do not make your payments. You do have to pay for this guarantee each month with a mortgage insurance premium, but this loan is still a good deal for people who have little or no equity in their home.
Lenders that are approved by FHA allow you to refinance loans that would not otherwise qualify. Because the loan is backed by Federal Housing Administration, the FHA mortgage interest rates are very competitive and may in fact be lower than market rates.
The FHA Streamline program is a great deal for the home owner with little or no equity. This program is available to those with an FHA mortgage even with negative equity.
It is important to note though that this is not a home rescue program. You need to have generally paid your loan on time for the last year. If you have had the loan for more than a year, you cannot have had a payment that was late in the last 12 months. And all payments need to have been made on time in the last three months.
The streamline refinance program has other benefits for refinancing your mortgage with no equity. You do not need to be qualified again for the mortgage. The FHA lender will not usually check your credit or your income again to determine if you can qualify for the refinance.
It gets better, too. When you do a standard refinance, including an FHA refinance with cash out, you need to have a new appraisal done. If the house is not worth enough, you may not be able to refinance. But with the streamline refinance, you do not need a new appraisal. So, you can use the last appraisal that you had, whether that was for the original purchase or your last refinance.
Not having to have an appraisal offers several benefits. First, you do not have to pay $500 or so for another appraisal. Second, the appraisal always takes a few weeks to schedule, conduct and then to have the report completed and delivered to the lender. So, not having to do another appraisal is a big time saver. Some streamline refinances can be done in only two weeks.
2020 could be a good time to do an refinance with a FHA streamline because home prices are rising – you might have more equity than you think – and rates are still very low.
Rate and Term Refinance
Another good option for you could be a rate and term refinance. This is for people who have at least 3.5% equity in the home. Most conventional lenders want to see 20% equity to do the refi. But an FHA refinance is possible with 3.5% equity.
This type of rate and term refi makes sense if you have a little equity in the home but your credit score has tanked for a number of reasons.
This type of FHA home loan program will require you to show a decent level of income and two years of employment. Higher debt is often ok; some people are approved with 50% debt to income ratio. Apply for a FHA loan today.
If you have a VA loan, you have some good options. People who are active or retired military can often do a refinance with little or no equity. You may even be able to do a fast refinance, called the VA streamline and not even have an appraisal done!
Takeaways on No Equity Refinancing
The mortgage lending market is more flexible today than it was a decade ago right after the crash. Today, you can find options to get a refinance done on a no equity refinance with a high loan to value ratio. You should speak to a variety of lenders in your area and see if they offer some of the above no equity mortgage refinancing programs.
Related Articles: Retrieved from New HARP Standards for 2017 and Beyond and The Best Refinance programs for People with Little or No Equity