How to Refinance Toxic Mortgages
- 1). Scrape up enough money for a big down payment, the Bankrate website suggests. Lenders prefer an 80 percent mortgage-to-value ratio. If your house is worth $150,000, for instance they don't want to lend more than $120,000. If you have a $200,000 mortgage on a $150,000 house, you could refinance if you could accumulate $80,000 for a down payment.
- 2). Apply for Federal Housing Administration refinancing, CBS Money Watch recommends. If the FHA agrees to insure your loan, which protects your lender from losses, you can get by with a much lower down payment. If you have excellent credit, the FHA may agree to a down payment of only 3.5 percent. With a $200,000 mortgage and a $150,000 house, you'd have to pay the $50,000 excess mortgage and $5,250 in a down payment: $55,250 total.
- 3). Ask the government for help if you can't refinance on your own. If your mortgage isn't worth more than 125 percent of your home's value, the federal Home Affordable Refinance Program will offer your lender financial incentives to refinance. To qualify for the program, you must be current in your mortgage and it must be backed by either Freddie Mac or Fannie Mae, federally sponsored corporations that invest in the mortgage market. The program's web page gives information on finding out if your mortgage is backed by either company. The program will stop accepting applications on June 10, 2011.
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