Can I Refinance My Home if I Owe More than its Worth?

You heard it all over the news through the course of the mortgage meltdown, “Home Values Down 10%…20%”. “Homeowners owe more that their homes are now worth.”

While cities in the Midwest like St. Louis, Kansas City and Indianapolis didn’t get hit as hard as other larger cities, everyone knew someone who lost a home or is struggling to manage bills, in any city.

Enter then, a market that has once in a generation interest rates that should be helping everyone with a mortgage recover financially, but for those who are upside down on their mortgage, they have been left on the outside, looking in leaving them unable to refinance on the basis that they owe more than their home is worth; in other words, they are, “upside down” on their mortgage.

Now there are programs that the government has started that offers hope for those who have paid their mortgage on time but just happen to have had the bad luck of buying, or refinancing at the peak of the market.

How Can I Find out if I Qualify?

Here’s a quick checklist to see if you may qualify:

  1. Is your mortgage owned/insured by Fannie Mae, Freddie Mac, or FHA?

To see if your mortgage is owned by Fannie or Freddie, go to or

To see if your mortgage is insured by FHA, just check your mortgage statement.

2.Did you take out your existing loan prior to May of 2009?

If you took our your mortgage in May of 2009, there will need to have been enough time for your mortgage post closing paperwork to be filed with the appropriate agency.

  1. Are you paying your mortgage on time?
  2. Do you still have consistent income?

If you answered yes to these questions, you may be able to refinance into a lower rate, even though you owe more that what your home is worth through one of the governments programs and take advantage of these historically low rates.

Is there a catch?

Yes, there always is. The government mortgage agencies always have recommended guidelines for participating banks to follow, however, the banks apply their own overlays which may be more conservative than the government’s.

In other words, borrower John, who is upside down on his mortgage applies in Kansas City for a refinance with “A Kansas City Bank” and is turned down. However, Mary, who has the exact same criteria as John, applies with “A St. Louis Bank” in St. Louis and is approved because each bank has different lender overlays.

They key is to know if you are upside down and do your research. As always with more questions, you should call a federally licensed NMLS loan officer.

Posted in Home Loans, Mortgage Questions, Refinance.