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Can You Refinance Your Mortgage With No Equity

Can You Refinance Your Mortgage With No Equity

You should have at least 20% equity in your home to refinance according to the practice of the conventional lenders. In case you have significantly less equity, you might have a chance to substitute your loan to a loan that is backed by the FHA (Federal Housing Administration), and also a few streamlined programs by the government allow you to refinance without having any equity in your home.

Streamline Refinancing by Federal Housing Administration

If you currently have an FHA loan and your payments are up to date, then you should look into a streamline refinance through FHA. This program enables you to refinance your current mortgage to a lower interest rate even if you have no equity in your property. Since you were already qualified when you first took out your existing loan, there’s no requirement for credit or an income check. FHA will value your home at the same value, which you had when you first closed your present loan, so you also don’t need a new appraisal. The one disadvantage of an FHA loan is, through a streamline refinance, you can’t get cash out of your property. Current FHA rules stop you from taking more money than you need to settle your existing loan.

Streamline Refinancing  by Veterans Affairs (VA)

A Veteran Affairs Interest Rate Reduction Loan (IRRL) is very similar to a Federal Housing Administration streamline refinancing as it lets military personnel homeowners who currently have a VA mortgage loan to shorten their loan period or decrease the monthly payments with no equity requirements. Although a few lenders will set their own lending benchmarks, there’s no appraisal, and no specific credit qualifying for Interest Rate Reduction Loan refinances. Usually, an IRRL program can be done by including the closing costs in the new loan, and you don’t have to bear any expenses out of your pocket.

Rate-and-Term Refinance

The FHA’s rate-and-term refinancing might make some sense for you if you have some equity in your property. You can refinance any mortgage with rate-and-term refinance. If you have owned the house for at least 12 months, you can even refinance a conventional mortgage into an FHA loan with just 2.25% equity in it. You’ll require a credit score of around 650 and a two-year employment history to qualify. Moreover, your debt-to-income ratio (your monthly debt amount divided by your total monthly income) should be below 43 percent. In rate-and-term refinance, there’s no cash-out flexibility available, so you must use all the money you get from rate-and-term loan to pay off your existing mortgage loan.

Cash-Out Refinance

With an FHA cash-out refinance, you can have a loan with a higher balance than what you currently owe; it provides you with cash that you can use to pay off your other loans or make some home improvements. You’ll need to have at least 15% equity in your property at the time of the refinancing based on its fair market value as these loans are riskier than regular refinances. You’ll also be required to have a new appraisal. Furthermore, for every $100,000 borrowed, you’ll have to pay mortgage insurance of around $67 every month. You’ll have to meet the requirements for an FHA mortgage in the same way as if you were purchasing a house to obtain a cash-out refinance. Income and Credit requirements are the same as the requirements for a rate-and-term mortgage loan.

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