Tuesday, June 19, 2012

How to Refinance Without 20 Percent Equity

By Laura Bramble

When lenders tighten their standards in a tough real estate market and economy, it is not only new mortgages that become harder to get. Refinances become more difficult to get as well. To get a new loan with better terms, today's homeowners needs to have very good credit and equity in their homes. However, when homes across the country lose value in a soft market, homeowners lose valuable equity. Refinance loan programs for those with 20 percent equity or more in their homes are plentiful, but those without 20 percent equity will have to look a little harder.

Look at the current status of your credit and credit score. Also look at the current terms on your loan. If your credit is not good or the refinance rate is not at least a percentage point less than the rate of your current mortgage, you may want to reconsider refinancing since you will not be saving enough money to make paying the closing costs worthwhile.

Get an appraisal done, so that you know how much equity you have. This will help to determine what programs you may wish to consider, what interest rates they are charging and if it is worthwhile. Most appraisal reports from a local reputable appraiser can be used during the loan process, so you can recoup the report cost.

Refinance your USDA rural loan through the USDA for the full amount of your mortgage, up to 100 percent plus fees, even if the home is no longer in a rural area. You must currently hold a USDA mortgage on the property and the refinance rate must be at least 1 percent less than the current loan's interest rate.

Explore a VA refinance if you are in the military or are an eligible veteran. You can refinance a non-VA loan for up to 100 percent, or 90 percent for "cash out" refinances. You must hold an eligibility certificate that would cover the full amount of the loan or be paying off an existing VA loan that will release eligible funds.

Consider an FHA mortgage if you are not a veteran and do not have an USDA loan. Refinances are available for up to 95 percent of the value of the home, or 85 percent on "cash-out" refinances.

Talk to your lender about the Making Home Affordable program. This is a government-backed program that allows homeowners a low-cost way to refinance up to 125 percent of the appraised value of their home. It is used for those who wish to lower their payment or to move into a fixed rate mortgage from an interest-only or adjustable-rate mortgage. See the link in Resources for the requirements to qualify.

Talk to a conventional lender about refinance options if you have less than 20 percent equity. You may be able to do a conventional refinance without 20 percent equity, although you will have to pay private mortgage insurance.


http://www.lenderva.com

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