Q: I am a U.S. Army veteran having trouble refinancing a home I purchased over 3 years ago. I want to lower my rate and monthly payment.
I have a fixed 30-year loan at 6%. I bought it for $132,000 and now owe $125,000. The property has fallen in value. I don’t wish to move back into a 30-year loan, but if I take a 20-year loan my payment increases and I have to pay pmi. What can I do?
A: I’m afraid your options for getting a conventional loan refinance are very limited at this point due to several factors. First, the drop in value in your home has eaten away your at equity, and your home appears to be underwater.
Most lenders simply will not refinance a property that has “negative equity.” Second, you have lived in your home just a little more than three years. So you’ve currently paid down only a very small amount of principle from your original loan.
If you’re not willing to get another 30-year loan, as you’ve suggested, a new 20-year loan would raise your payments considerably – the exact opposite of what you’re trying to accomplish.
Lastly, while interest rates have come down to about 5% since you originally bought your house, realize that such low interest rates are reserved for customers with excellent credit and at least 20% equity in their homes. All is not lost, however, as it’s possible that a VA loan may help you – or possibly another government-backed loan program.
Consider a VA Home Loan
If you don’t already have a VA loan or know about VA home loans that are available to veterans, be sure to check out official website of the U.S. Department of Veteran Affairs and their home loan information center for more information about various mortgage options. Remember, though, that the VA doesn’t make loans; they just guarantee loans.
Among the many benefits of VA-backed home loans are:
• a negotiable interest rate
• relative low closing costs
• no mortgage insurance premiums
• an assumable mortgage
• a loan with no pre-payment penalties
• possible financial assistance when a borrower experiences financial difficulty
As you may or may not know, getting a VA insured loan requires you to first secure a Certificate of Eligibility. You can do this over the Internet (http://www.vba.va.gov/pubs/forms/vba-26-1880-ARE.pdf) or with the help of a loan expert who specializes in VA loans.
That’s where I’d start to see about potential refinance options. Also, here’s another VA resource, (http://www.homeloans.va.gov/pdf/veteran_registration_coe.pdf), that explains how to register on the Veteran Information Portal and obtain your Certificate of Eligibility online.
Making Home Affordable
One last option would be to investigate the Making Home Affordable Program, President Obama’s $75 billion program to help struggling homeowners either modify or refinance their home loans.