Refinance with zero or negative equity

[flyers]

Can you refinance a mortgage if there is no equity in the house?  If so would there be huge closing costs involved?

  ie. House mortgage is $200,000 but due to current market conditions appraisal comes in at $200,000 or less.

I would like to refi if I can to lower my interest rate.   Purchased house back in August.

[ShanetheMortgageMan]

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flyers wrote:

Can you refinance a mortgage if there is no equity in the house?  If so would there be huge closing costs involved?

  ie. House mortgage is $200,000 but due to current market conditions appraisal comes in at $200,000 or less.

I would like to refi if I can to lower my interest rate.   Purchased house back in August.

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What is your current rate right now?  What is your credit like?

Sounds like you are in a declining market, and if so, lenders are restricted the amount you can finance to 5% below the maximum financing... so 100% financing turns into 95% financing.  There are closing costs involved in a refinance, your current lender might be able to do a streamline refinance in order to cut down on some of those costs.

If the value comes in less, then you would have to pay the difference on the mortgage vs. the value, plus any closing costs.

[flyers]

Shane,  I'm a 680 middle & my wife is a 703 middle.   I had a BK back in 04/05, perfect since then.  Our rate is 7.75 IO 10year/30yr fixed.

[ShanetheMortgageMan]

Well it definitely appears if you can refinance that you would be able to get a lower rate... what county/state are you in?

You can also get "no closing costs" refinances, where you don't have to pay any of the closing costs.  The closing costs are still charged, but they are paid by the mortgage broker because you are given a higher rate than if you paid the closing costs yourself.  By giving you a higher rate, this creates extra "rebate" for the broker, so with this extra rebate the broker would apply it towards your closing costs.

[flyers]

shane,  we are in AZ, Maricopa Cnty.    A "no closing costs" refi as you mentioned would be ideal if available.  If we even could do a refi but had to pay several thousand in closing costs it is not possible at this time for us.    I know Phoenix is one of the harder hit areas right now for house values. Heck, a big Countrywide office down the street just let all 300-400 go last month.

[ShanetheMortgageMan]

Yeah most of Maricopa County is in a declining area... Fannie Mae & Freddie Mac have reduced the max LTV's in declining markets by 5%, so if you were to refinance into their programs, it appears you'd have to bring in 5% of your home value in order to complete the refinance.  Although the only way to know for sure is to submit an application and see what the automated underwriting findings say, because automated underwriting is what is used to determine if the area you are in is a "declining market" or not.  It's census tract specific, so even though most of the area could be a declining market, a specific census tract within that market might not.

FHA doesn't adhere to the declining market guideline... and FHA will do a refinance at a little over 97% of your loan-to-value.  FHA can permit a 2nd mortgage to 100% CLTV (actually the CLTV can be unlimited), so you could get an FHA 1st mortgage to just above 97%, closed simultaneously with a 2nd mortgage that goes to 100% CLTV, take a higher rate than normal on the FHA and have the closing costs paid for that way, and not bring any money into closing.  The only problem could be finding a 2nd mortgage lender that will go to 100% CLTV with a BK less than 4 years out, the only lender that I know which still goes to 100% CLTV on 2nd mortgages requires 4-years from BK and a 720 credit score.

Message Edited by ShanetheMortgageMan on 01-21-2008 09:24 AM