How to Refinance a Mortgage with No Equity Required Using a 100% Loan
For many years, homeowners have been searching for 100% mortgage solutions. 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% LTV mortgage, but there are still ways that you can do it to qualify for with great rates and terms. 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 no equity 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 government 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 Perspective on 100% Mortgage Financing
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.
Best 100% Mortgage Loans for Refinancing
Homeowners who want to refinance but have little equity may think that they have no options, but there is hope for them.
As the credit markets have loosened up in recent years, there are more 100% refinancing loans out there. Below are the best options for your 100% refinancing goals, and also some tips on how to get approved.
#1 FHA Streamline for 100% Mortgage
This is a great option for the current home owner who has an FHA mortgage at a higher interest rate. Perhaps you bought a home during the boom from 2003-2007 and you are paying as much as one percent above current rates.
If so, you may be able to qualify for an FHA Streamline Refinance Loan. To qualify, you just need to have an FHA lien that has been paid on time for at least the last year. This 100% refinance also must lower your interest payments.
The advantage of the streamline refinance is that you can usually skip the requirements of getting a new mortgage, including credit check, income verification and appraisal.
That’s right. If you have little to no equity, or even negative equity, you may be able to refinance your FHA mortgage anyway without a new appraisal. Refinances are usually impossible if you have no equity. But FHA wants to help qualified home owners refinance their homes so they don’t default.
From FHA’s point of view, this is logical. The last thing it needs is thousands of home owners defaulting on their home loans at once.
While you cannot pull out cash with an FHA streamline loan (even if you have any), it still is a great option to get your payment down and keep you in your home.
#2 Home Affordable Refinance Program (HARP)
This is a special government program for Fannie Mae and Freddie Mac-backed mortgages where the homeowner owes more than the home is worth.
The HARP program has been in effect for more than seven years. It has helped at least 3 million American families underwater on their mortgage to refinance. The new HARP 3.0 has been more effective than HARP 2.0 because the new lender is not responsible for anything negative that happened on the first loan, such as fraud.
The HARP program, whose current version expired in September 2017, has been a vital part of the American housing recovery. It has allowed many families to reduce their monthly payments even if they have negative equity. We anticipate this program to be around for 2018 and maybe longer depending upon the needs of distressed homeowners in the U.S.
Still, many American families in trouble on their mortgage have not taken advantage of the HARP program. This happens for a variety of reasons:
- Homeowners have bad credit. Millions of Americans lost a lot of income in the financial crash. This led to unpaid debts and bad credit. Some homeowners may not be able to qualify as their credit is too low.
- Homeowners don’t understand HARP. Some may think that they cannot qualify when they can.
- Homeowners think they won’t save enough. Those who have 6% interest rates could save hundreds per month as HARP rates are around 4% in 2017. But many still think they won’t save.
- Homeowners think it’s too much trouble. The HARP application is quite easy and streamlined. Most people do not know that a HARP closing is usually short and pain free. The government wants to help people in trouble on their homes so that they do not default.
To qualify, your home loan needs to be owned or guaranteed by Fannie Mae or Freddie Mac.
The current LTV on the loan has to be higher than 80%. You also need to have on time payments for the last year. You also need to have at least a 620 credit score. You also need to prove you have the income to pay the loan.
#3 VA Loan for 100% Loan Refinancing
If you are a military veteran or have been in the military for more than 90 days, you may be able to refinance your home with a VA loan. A VA loan allows you to refinance with no equity and no new appraisal.
This is the only program that guarantees a mortgage refinance for veterans, as long as you have the assets and income to qualify for the loan.
The Bottom Line on 100% Loans
The above three 100% mortgage loans for refinancing are your best options if you have no equity or you owe more than the home is worth. For most homeowners, you should be able to qualify either for a HARP 2.0 refinance or an FHA streamline refinance, if you hold one of the loans that qualify.
Criteria to be allowed to refinance for these programs is quite flexible. If you are a veteran, you should try to refinance with a VA loan right away.
These 100% refinance options can be a true life saver for the homeowner in trouble on his or her mortgage.