The biggest obstacle for homeowners interested in taking advantage of today's low interest rates to refinance is usually a lack of equity. Depending on the local housing market, some homes have dropped by 20, 30 or even 40% in value. But some homeowners may still be able to refinance up to 125% of the value of their home.
If the homeowners have their current mortgage owned by Fannie Mae or Freddie Mac, they may be able to refinance even if they owe more than their home is worth. While the Fannie Mae and Freddie Mac rules say that they can refinance up to 125% of the value of the home, direct lenders typically will go only up to 100% of the value.
To take advantage of this program, homeowners do not need to be behind on their payments. They do need to have good credit (640 or better, at least) and a good debt-to-income ratio. Typically the maximum total debt allowed is 45% of gross income.
Begin by checking to see if your loan is owned by Fannie Mae or Freddie Mac at these websites. For checking Fannie Mae you can look here. For checking if your mortgage is owned by Freddie Mac, check here.
Next, call your lender to see if you can refinance with your current company. If not, contact a mortgage banker or broker to discuss your personal financial situation.
Written by Michele Lerner
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