A new high LTV refinance program was just announced to Help Underwater Homeowners as HARP expired. The outlook for mortgages is looking better in early 2024, with rates finally going back down. Even though rates have increased significantly in the last 2 years, the 30 year fixed mortgages are still near historic averages.

What is a High LTV Refinance?

Many people do not realize that conforming to Fannie Mae and Freddie Mac loan limits permits a maximum 95% LTV ratio for a standard (non-cash-out) refinance on a single-family house. However, in the case of a cash-out refinance, the maximum LTV decreases to 80%. This threshold is further reduced for second homes and investment properties. The one exception is the FHA cash out refinance that allows you to receive money back up to 85% LTV.

High LTV loans typically carry a higher interest rate, but the HARP mortgage rates have always been competitive regardless of loan to value. As the HARP program eligibility has faded, hopefully more high LTV refinance opportunities will arise in the coming year.

For that reason, some Americans are continuing to refinance while they still can. During the height of the real estate boom a decade ago, rates were near 6%. If you have a mortgage from that era, you could benefit from refinancing today.

What is the HIRO Refinance Program?

Fannie Mae has recently introduced the HIRO program, designed for borrowers facing challenges in qualifying for a conventional refinance mortgage due to insufficient equity. The High-LTV Refinance (HIRO) loan aims to assist homeowners with limited or no equity in refinancing to attain a lower interest rate and monthly payment. HIRO is specifically tailored for borrowers who have not experienced the benefits of appreciating home values in recent years.

Look for High Loan to Value Refinance Loans If You Lack Home Equity

However, people who have a high loan to value or LTV, and may even owe more than the home is worth, are often out of luck. Even the HARP program that helped out many underwater homeowners is not a possibility for some of these homeowners.

The good news for them is that there will be a new high LTV home loan program coming online in October 2021 for Fannie Mae backed mortgages. Some of the previous restrictions on Home Affordable Refinance Program will be discarded, and more homeowners will now be eligible to refinance.

If your home is able to qualify for the new refinance program, you could enjoy these benefits:

  • Tap home equity if you have it, to pay for things you need
  • Get rid of your mortgage insurance
  • Fix the rate on your current adjustable mortgage
  • Reduce your loan term to 15 years
  • Boost cash flow from an investment property
  • Reduce your monthly payment

The new refinance program for high LTV borrowers will allow you to refinance even if you owe more than the home is worth.

It will be quite similar to the HARP program that it replaces, but there will be some improvements:

  • You can use the program two or more times. With HARP, you could only use the program one time. This was a major limit for many people who were in trouble on more than one property.
  • There is no cutoff date for loan origination. With the HARP program, the homeowner had to have opened the mortgage before June 2009. That was eight years ago; there are not that many mortgages that old today.

The new high LTV loan program does not have these restrictions. You will be able to refinance your home if your home loan is from 2009 or later. This could bring in a flood of refinance and 2nd mortgage applications at the end of 2023.

To be eligible for this new high LTV refinance program in 2024, you must meet these criteria:

  • You have to be getting a lower interest rate
  • You must have a reduction in your principal and interest payment each month
  • You can be moving to a shorter loan term
  • You can be trading an adjustable loan for a fixed loan.

You also will need to meet other eligibility requirements. For example, if you have a Fannie Mae loan, you will need a loan to value of at least 95%. Freddie Mac loans have to have at least a 97% LTV for the refi.

The loan that is being refinanced has to be a Freddie Mac or a Fannie Mae loan. Some thought that the program would eliminate the requirement that the loan be backed by Fannie and Freddie, but it seems that this requirement is going to stay put.

Note that this new program can NOT be used to refinance a HARP loan. If you had a HARP loan before and have refinanced it into another Fannie or Freddie loan, you can still refinance.

Further, you have to meet these financial and credit requirements:

  • Had to have made 12 on time payments on the loan
  • No 30 day late payments in the last six months
  • No more than a single 30 day late payment in the last year

Another very interesting aspect of this new program is that there will be streamlined documentation mandates for income, employment and assets. We do not know the details yet, but it could mean that you will not need to submit pay-stubs, W2s, tax returns or bank statements to be eligible.

But some people think that it could mean reduced documentation will be needed, such as turning in a single paystub or W2.

If you have a Freddie Mac backed loan, there also will be a new high LTV refinance program. This is being called Enhanced Relief Refinance. The minimum LTV requirement will be 97% rather than 95% in Fannie’s case.

Note however that to refinance in the Freddie Mac program, you will need to have a current Freddie Mac loan.

The Bottom Line on High LTV Refinancing

If you are in trouble on your mortgage and owe more than your home is worth or you have almost no equity, you may be able to refinance with the new Fannie or Freddie refinance program. Talk to several high LTV lenders today and see if you will be eligible.

If so, you can save your home and possibly pay much less on your monthly mortgage payment.