Can I refinance my mortgage?

Can I refinance my mortgage

Can I refinance my mortgage, Homeowners can take advantage of low mortgage interest rates by refinancing their home loans. Depending on the mortgage size, a homeowner can often save more than $100 a month by shaving a point off the mortgage interest rate. Unfortunately, the majority of lenders require a homeowner to have at least 20 percent equity in a home before they'll approve a refinance. A homeowner who has no equity--which can happen when home values drop after an owner purchases a residence--will have to put in more effort to find a lender willing to refinance a home loan. Fortunately, a new government program can help.


Step 1

Call several mortgage lenders--not just the one servicing your existing mortgage loan--and explain that you want to refinance your mortgage but that you have no equity in your home. Lenders who are participating in the federal government's Home Affordable Refinance Program might be able to refinance your mortgage if you have no equity or even if you have some negative equity. Lenders who aren't participating in this program can still refinance your loan if they chose to do so. Most, however, won't do this if you do not have equity in your home. Can I refinance my mortgage?

Step 2

Make copies of the financial paperwork that you'll use to prove to a mortgage lender that you can afford your new monthly mortgage payment. This paperwork includes your last two pay stubs, your most recent federal income tax return, and your bank savings and checking account statements. Send these to the lender who will make sure that your monthly debt obligation, including your new mortgage payment, is less than 28 percent of your gross monthly income.

Step 3

Pay for an appraiser to determine the current market value of your home. Your lender will select the appraiser. Depending on the size of your home, expect to pay about $400 for the appraisal. The appraisal will determine exactly how much equity, if any, you have in your home. This is important: A lender working with the Home Affordable Refinance Program can approve a refinance request for a homeowner who has no equity or whose home loan is as high as 125 percent of the home's current value. This means that a homeowner with a $125,000 mortgage loan on a home worth $100,000 can qualify for a refinance through the government program.

Step 4

When a lender approves you for refinancing, sign any closing documents. In most cases, you'll also have to pay some refinancing fees. These vary by lender, but are generally 3 percent to 6 percent of the loan amount. You can either make a one-time lump-sum payment or roll this cost into the principal balance of the mortgage and pay it off over time in your monthly mortgage payments.

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