If you are like thousands of other Americans, you are underwater on your home. In other words, you owe more than its worth. You may think you are stuck with your current mortgage. What lender would refinance your loan when the appraisal shows a lower value? Luckily, you have options to refinance without verifying your home’s value.
Keep reading to learn which programs apply.
If you have a current FHA loan, you may be able to refinance it without ordering an appraisal. If you refinance from an FHA loan to another FHA loan and meet the following requirements, you may be eligible:
- Own the home for at least 6 months
- Have a timely mortgage payment history (no 30-day late payments in the last 12 months)
- Have the money to pay the closing costs upfront or get a no-closing cost loan
- You must have a benefit for the refinance (lower payment, or refinance from an ARM to a fixed rate
That’s all the FHA requires. You don’t have to verify your credit score, income, employment, or your home’s value. The lender can use all of the qualifying factors from when you took out the original FHA loan. As long as there is a benefit for the refinance, an FHA approved lender can provide you with the streamline refinance.
The catch is that you only refinance the outstanding principal balance of your loan plus the upfront mortgage insurance. You cannot take cash out of the equity or roll any debts into the loan to pay them off.
The VA streamline loan works much like the FHA streamline. If you have a VA loan now, you may use the streamline program. Again, you don’t need to verify your income, assets, employment, credit score, or home’s value. The lender can use everything from your original loan. In this case, you need the following to be eligible:
- You paid your mortgage as agreed for the last 12 months (one 30-day late payment is allowed)
- You have a net tangible benefit for refinancing (lower payment, less risky loan)
- You can prove that you lived in the property as your primary residence
- You used your own eligibility for VA financing to buy the home
The process works much the same. As long as there is a benefit for the refinance and you are current on your loan, you may be eligible for the VA streamline program.
Just like the FHA and VA streamline, the USDA also has their own streamline program. This program also uses your housing payment history as the basis of your eligibility. The USDA does not require verification of your income, assets, or the home’s value. They are very strict about your housing payment, though. You cannot have even one late payment in the last 30 days in order to be eligible.
If you do have one 30-day late payment, you must wait an entire 12 months before you can use the USDA streamline program. Unlike the FHA or VA streamline program, the USDA program requires that you only take a 30-year term. It’s not an option to take a shorter term to pay your loan off faster. In addition, the USDA is very specific about how much money you must save each month. They require at least a $50 savings, whereas the FHA and VA only require you to save money, they are not specific about the amount.
Lastly, and just like the other two options, you must live in the property as your primary residence in order to be eligible.
The Benefit of No Appraisal
The streamline programs that do not require an appraisal offer quite a benefit. As we said above, you can even be underwater on your loan and still refinance. All of the government agencies figure that you already have a mortgage on the home and are upside down. There is no harm to them if you refinance even though you are upside down on the home.
In fact, it benefits you and the government agencies if you refinance. You get a loan that saves you money or lowers the risk of default. The government agency has a lower risk of having to bail a lender out if you default on the loan.
It’s a win-win situation when you don’t need an appraisal and can use a streamline refinance program. If you stand to save money, it’s beneficial to refinance. Just make sure you watch the closing costs closely. Make sure the refinance saves you as much as you think. Overpaying for closing costs will take away from the savings, taking away some of the benefit of refinancing. You can shop around with any lender you like, as long as they are approved for the specific loan program you chose.