Can I Refinance My Mortgage for What I Owe?

You might be able to refinance your mortgage even if you have no equity.

You might be able to refinance your mortgage even if you have no equity.

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by Contributing Writer

You know that refinancing your home loan to one with a lower interest rate can save you $100 or more a month in mortgage payments. Unfortunately, your home may have lost value since you purchased it, and you may have little or no equity in your residence. The good news is that you might be able to refinance your home if you have no or negative equity. A program launched by the federal government holds the key.


The federal government's Home Affordable Refinance Program, usually referred to by the acronym of HARP, gives homeowners who don't have enough equity the opportunity to refinance their homes. Traditionally, mortgage lenders require homeowners to have at least 20 percent equity in their residences before they'll approve them for a refinance. Loans completed through the HARP program, though, don't come with such a requirement. You can refinance a mortgage through HARP -- if you meet certain requirements and gain the approval of a mortgage lender -- even if you have no or negative equity.

Finding a Lender

To complete a refinance through HARP, you'll have to work with a private mortgage lender. The government, though it created HARP, doesn't directly refinance mortgage loans. When searching for a lender, call several different ones so that you can shop for the lowest rates and fees. You don't have to work with the lender to which you already send your mortgage payments. Tell any lender that you call that you think you have no or negative equity and that you are interested in HARP. The vast majority of lenders participate in HARP, but not all do.


The lender with which you work will order an appraisal of your home. Under this process, an appraiser will visit your home and consider recent sales of other similar properties in your community to come up with a current market value. From this figure, your lender can calculate your home equity. If you owe $150,000 on your home loan, and your home is appraised at $140,000, you have negative equity. If you have less than 20 percent equity -- if you owe $150,000 on a mortgage loan, your home would have to be valued at $180,000 for you to reach the 20-percent-equity mark -- you will probably have to work through HARP to close your refinance.

HARP Rules

To close a refinance through HARP, you'll need to meet certain requirements. Your mortgage loan must be owned or guaranteed by Fannie Mae or Freddie Mac. You must be current on your mortgage payments, and you must not have missed any payments in the last 12 months.

The Process

Besides the fact that working through HARP allows you to refinance with less than 20 percent equity, the process is similar to a standard refinance. You'll need to fill out a Uniform Loan Application, providing such basic information as your home address, full name, Social Security number and estimated gross monthly income and monthly debts. You'll also have to send your lender copies of such financial paperwork as your last two years' worth of income tax returns, last two months of bank statements and last two work paycheck stubs. Your lender will run your credit. If your lender approves your refinance request, you'll need to sign the closing documents and pay any closing fees before your refinance becomes official.

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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