How to Refinance a 100 Percent Mortgage

Refinancing a 100 percent mortgage loan is a challenging task.

Refinancing a 100 percent mortgage loan is a challenging task.

If you took out a mortgage loan that didn't require a down payment -- a 100 percent mortgage -- you might struggle to refinance that loan depending upon how long you've owned your residence. Most conventional mortgage lenders require that you have at least 20 percent equity in your home before they'll approve you for a refinance. Depending on how much of your mortgage loan you've paid off and the current value of your home, you might lack this equity.

Call several mortgage lenders -- you don't have to work with your existing lender, but can work with any licensed to do business in your state -- and state that you'd like to refinance your mortgage loan. Explain that you took out a mortgage loan that didn't require a down payment and that you might not have the traditional 20 percent equity that most lenders require for a refinance. You'll then need to provide your lender with key information about your current loan -- notably, how much you still owe on it. You can find this information on your most recent mortgage-loan statement. You'll also have to provide your lender with copies of your important financial documents -- pay stubs, income-tax returns, bank statements -- to verify your gross monthly income.

Schedule a home appraisal through whatever lender you decide to work with. Your lender will want to determine the current market value of your home, a task taken on by a real estate appraiser. This professional will inspect your home and consider the value of similar properties in your property to determine its current value. By figuring the amount of money that you owe on your mortgage loan and your current market value, your lender will be able to determine your equity. If you owe $180,000 on a home valued at $190,000, you have $10,000 worth of equity, or 5 percent of your home's value. The refinancing of a 100 percent mortgage loan can run into a snag if your equity isn't high enough -- most lenders won't grant your request for a conventional mortgage refinance.

Look into alternative refinancing programs if you don't qualify for a conventional mortgage refinance. If you took out a loan that didn't require a down payment, and if your home value hasn't risen or has fallen since your purchase, you might not have the 20 percent equity that lenders require for a conventional refinancing. You do have an option, though. The federal government offers the Home Affordable Refinance Program, better known as HARP, which provides financial incentives to lenders who agree to refinance the mortgage loans of homeowners who have little or no equity. This program offers refinances to owners of 100 percent mortgages who may not qualify for conventional loans.

Ask your lender -- you work with your current lender for a HARP refinance, a key difference from a traditional mortgage refinance -- if you qualify for a HARP refinance. You must be paying off a home loan owned or guaranteed by Freddie Mac or Fannie Mae. You must also have no late payments in the last six months on your loan and no more than one late payment within 12 months to qualify for HARP. But even if you meet the requirements, your lender is not required to approve your HARP refinance. If this is the case, you can call other lenders, as long as they are licensed to do business in your area, and ask if they will refinance your loan. The odds will be against you, though, if you lack enough equity. You might have to wait until your home rises in value or you pay off more of your mortgage loan before you'll qualify for a refinance.

 

About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.

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