Can you refinance if you owe more than your home is worth?
While the tide is coming in and many areas of Eagle County are seeing stable to increasing property values, there are still thousands of homeowners out there that are underwater on their loans, meaning their loan is more than their property is worth.
But we all have to live someplace in the mean time, and I personally believe that in time values will surpass the highs we saw in 2006/2007 for most areas within the next 3-5 years. There might be some condos down valley particularly in Gypsum that declined 60-70% that may take longer.
Many homeowners who are upside down assume there is no way for them to benefit from the current low rates, but that is not always the case. If your loan is owned (not serviced but owned) by Fannie Mae or Freddie Mac and was closed before 5/30/2009 then you may have some options you are not aware of.
In most cases, loans that are owned by FNMA or Freddie Mac that were closed by 5/30/2009 are eligible for a refinance up to 125% loan-to-value. That means if you owe $250,000 and your property appraises at only $200,000 you can possibly lower your interest rate substantially.
Note that Fannie Mae and Freddie Mac do not service loans, meaning they don’t collect the monthly payments. So if you are making your payments to Chase, for example, Fannie Mae might still be the underlying owner of the loan.
Both Fannie and Freddie have web sites to look up and see if they own your loan, but they are not foolproof by any means. Fannies is www.fanniemae.com and Freddie Mac is www.freddiemac.com. Both will ask you to input your name, address and the last four digits of your SS number. The problem is that if you don’t hit everything exactly as they have it you might be told they don’t own your loan when in fact they do.
If for example they have your street name as Deer Blvd. and you spell out Boulevard it probably won’t find a match. Same if you are unit E vs. East or 0061 vs. 61. Try a few variations but if yo don’t find a match don’t give up. Your next effort is to call your servicer (the company you make your payments to) and ask them who owns your loan, and if they tell you it is Fannie or Freddie ask them for the servicer ID number.
If you determine you have a Fannie or Freddie loan then the next step is to fall your local mortgage broker and ask when they can offer you. There are different options depending if your current loan is Fannie or Freddie, and the rate will vary somewhat by property type, loan-to-value, and credit score, although for the most part rates on these loans are very close to a conventional refinance.
Keep in mind that if you closed your loan June 1, 2009 and the cutoff is May 31
st for eligibility there is no grace period. Also, it may have taken a few weeks to deliver the loan from your lender to Fannie or Freddie, and we have seen cases where the closing date is within the timeframe but the lender did not deliver the loan until later, making it ineligible for a refi.
Different lenders and brokers out there have differing policies and rates, so it’s not a bad idea to shop around. But do not base your decision solely on the interest rate offered, look very closely at the closing costs. That can vary by thousands of dollars.
And do not assume that just because you are considering refinancing with your current lender that it will be any easier or harder. These loans are just like a new loan, you have to document income, have acceptable credit (though it’s a bit easier to qualify if you have a few dings here and there than on a purchase) and usually you will need an appraisal.
I have seen quotes on these refinances from peoples existing lenders that are as much as half a point higher in rate and up to $2,500 in additional closing costs over what I would quote. The lenders know that they can charge a premium because the customers assume they can trust their current lender to give them the best deal. In many cases we can do these loans for little to zero costs, and in some cases on larger loan amounts we can actually get the lender to pay the borrower beyond his hard third party closing costs and contribute tax free cast towards opening escrows for taxes and insurance.
Call me at 970-748-0342 ro discuss your situation or click here to e-mail me your questions! I serve all the mountain resort communities including Vail, Avon, Beaver Creek, Eagle, Gypsum, Steamboat, Aspen and the Summitt County comminities and Breckenridge.