Is It Possible to Refinance an Underwater Mortgage?

Refinancing Options for Underwater Mortgages

With mortgage rates at record lows, refinancing is an appealing option that can offer debt relief—especially by converting a high-interest
adjustable-rate mortgage (ARM) into a low fixed-rate loan.
You may think this isn’t possible if you owe more than your home is worth, but government-sponsored refinancing programs can make it achievable even if you’re underwater.

Home Affordable Refinance Program (HARP)

The Making Home Affordable (MHA) program was introduced by the Obama Administration to help homeowners avoid foreclosure. One of its key components is the
Home Affordable Refinance Program (HARP),
which is designed to help individuals who owe more than their home is worth refinance into a more affordable mortgage.

Eligibility requirements for HARP:

  • You must not be delinquent on your mortgage payments.
  • Your mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
  • The loan must have been sold to Freddie Mac or Fannie Mae on or before May 31, 2009.
  • Your current loan-to-value (LTV) ratio must be greater than 80%.

This program is specifically designed for homeowners with little or no equity.

FHA Short Refinance

Also part of the MHA initiative, the FHA Short Refinance program helps homeowners refinance into more affordable, stable FHA-insured mortgages.
Your current lender must agree to participate and reduce your mortgage balance to no more than 97.75% of your home’s current market value.

Eligibility requirements for FHA Short Refinance:

  • You must owe more than your home is currently worth.
  • Your mortgage must not be owned or guaranteed by the VA, USDA, Freddie Mac, Fannie Mae, or FHA.
  • You must be current on your mortgage payments.
  • The property must be your primary residence.
  • Your total monthly debt must not exceed 55% of your gross income.
  • Applicants with certain felony convictions within the past 10 years are disqualified.

With the right knowledge and resources, refinancing an underwater mortgage is not only possible—it can dramatically
improve your financial situation.

About the Author

Julie Bawden-Davis is a Southern California-based writer specializing in personal finance and insurance. Since 1983, her work has appeared in numerous national publications,
including Family Circle, Ladies’ Home Journal, Parenting, Entrepreneur, and The Los Angeles Times.

Julie Bawden-Davis

Julie Bawden-Davis is a bestselling journalist, novelist, blogger, and YouTuber. A prolific author, Julie writes in several genres. She enjoys creating page-turning suspense served up with a dose of romance, garden books that turn any brown thumb green, and spiritual books meant to enlighten and inspire. Widely published, Julie has written 45 books and more than 4,000 articles for a wide variety of national and international publications. She lives in Southern California, where she enjoys sunny, blue skies most days and year-round gardening. Julie gains inspiration from being surrounded by plants when she writes.