- 1). Confirm that your property is indeed "underwater" (no equity or negative equity). A private appraisal will cost between $150 and $300, but you can use the source listed in resources to find an approximate value of your home. If you do have equity, chances are you'll qualify for a traditional refinance--an option that will give you greater flexibility when negotiating the terms and refinance rate of the loan.
- 2). Determine your eligibility for an FHA Streamline Loan. These loan products are only granted to mortgages that were financed through FHA- (Federal Housing Administration) approved lenders. Minimal qualifications for refinancing through the program include: the existing mortgage has to be up to date (not late); the borrower cannot take any new cash from the refinance loan; and the purpose of the loan must be to strictly reduce principal and interest payments.
- 3). Find an FHA-approved mortgage lender to process the new loan. Even though the FHA Streamline process may allow for negative equity loans, these are typically considered rescue or emergency loans, and a lender may turn down an application for financing due to the high risk involved. Cast a wide net when considering lenders for your refinance and be prepared to face rejection from many mortgage companies. The best way to improve your chances in a negative equity situation is to keep your credit strong, have a well-documented history of on-time mortgage payments, and have other assets to use as collateral.
- 4). Contact your original mortgage lender if the FHA process does not work. Many lenders have "bailout" programs that are specific to the particular lender. Often these programs are designed to help borrowers avoid foreclosure, get back on their feet, and get back to the making the standard mortgage payment down the road. These programs will help you get out of a negative equity situation.
How to Refinance a House With Negative Equity
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