Refinancing options for underwater California homeowners is a subject that doesn’t get enough press.
Having the ability to refinance your home to take advantage of today’s low interest rates may not be as futile as you might think.
Many California homeowners find themselves in a position of owing more than their home is worth. I was inspired to write this article today because of a conversation I had with a homeowner last week.
This family owns a home currently with an interest rate of 5.625% – which is about 1.5% higher than what’s available in today’s market and did not know there were options for taking advantage of the lower rates. With little effort or cost, this family has the opportunity to reduce their payments by potentially hundreds of dollars a month.
Even though their home is slightly upside down, it makes sense to hang on to this home while preparing to buy a larger home to accomodate for a growing family.
In certain situations, throwing good money after bad simply does not make financial sense.
In situations where you plan to stay in the home for the foreseeable future, the ability to take advantage of record low mortgage rates is your primary concern.
There are options for underwater or close to underwater homeowners in California. The availability of refinance programs depends mainly on the type of financing you currently have on your home.
Refinancing a high loan to value Fannie Mae or Freddie Mac loan in California
DU Refi Plus* is a refinance option is intended to assist borrowers by providing a benefit that seeks to ensure access to low interest rates for homeowners whose home loan is owned by either Fannie Mae or Freddie Mac.
In order to qualify for this program, the lender must be able to show that the borrower is receiving a benefit in the form of either:
- A reduced monthly mortgage principal and interest payment;
- A reduced interest rate;
- A reduced amortization term; or
- A more stable mortgage product; for example, movement from an ARM to a fixed-rate mortgage. lenders are encouraged to provide fixed-rate mortgages to borrowers whenever possible.
*DU Refi Plus refinance option can be offered by any lender that uses Fannie Mae’s automated desktop underwriter program. Refi Plus is a manual underwriting refinance option that is only available through your existing loan servicer and is not as widely accesible – for this reason, I am only focusing on the more popular and accessible of the two versions of this refinance program.
DU Refi Plus currently allows homeowners to refinance if they owe between 80% and 125% of the current value of the home.
Homeowner must qualify for DU Refi Plus and HARP financing using traditional methods of proving income, assets and property value.
Reduced paperwork may be allowed depending on automated underwriting results.
DU Refi Plus with HARP enhancement
HARP provides for exceptions to DU Refi Plus guidelines allowing for higher than 125% loan to value refinance opportunities. Qualifying criteria is the same as DU Refi Plus and may result in reduced fees and increased loan to value tolerances, removing the 125% limit.
Refinancing a high loan to value FHA loan in California
FHA offers a streamline refinance solution to homeowners in California. Quite often FHA streamline refinances require only that your current loan is a FHA mortgage and there is benefit to the homeowner.
With no income, asset or home value documentation required, the FHA streamline refinance is by far one of the quickest and easiest way to take advantage of today’s low interest rates.
Homeowner’s applying for a FHA streamline refinance must realize a 5% improvement in monthly payments to be eligible to refinance with this reduced documentation home loan.
Refinancing a high loan to value VA loan in California
VA offers a simliar streamline refinance solution to holders of VA home loans. The VA program is called Interest Rate Reduction Refinance Loan, or IRRRL. Similar to the FHA streamline program, reduced documentation makes this option a simple and inexpensive way for homeowners with a VA home loan to reduce interest rates to today’s record lows.
If you are a California homeowner and your goal is to stay in your home regardless of how much equity you currently have, take a close look at these options. Although these solutions will not help every upside down homeowner in California, there are several great options available that will help many in California.
Have specific questions about your unique situation? You can ask an expert by either calling, email, live chat or leave your question below and we can dig into which options may be available to you and your family.