Want to know your options for an underwater mortgage refinance? Here’s what to do when you can’t refinance your underwater mortgage.
Q: I built my home in 2006 for $750,000. I have a loan with a balance of about $525,000 and an interest rate of 6.625 percent.
I have been trying to refinance my mortgage for the past three years but cannot find anyone willing to loan me money. I have never missed or been late on a payment. My problem is that the last appraisal I had done was in December 2011 that came in at $410,000. At that time, there were 10 vacant lots in our subdivision under foreclosure, but they have now all sold.
There is an equestrian facility on the grounds that went through foreclosure. One of the four houses in the subdivision was under foreclosure, but recently sold. There are no other houses of a similar quality within 5 miles to use as comparables but those that are closest in quality to ours appraised at about $1,500,000 back around 2008.
I’m sure the value of my house has to be greater now than at the time of that last appraisal, if only because of the foreclosures being cleared. So my question is, how can I go about finding someone willing to refinance my house so I might take advantage of today’s great interest rates?
A: Unfortunately, you’ve stumbled across one of the problems in trying to value homes: you need other sales nearby to give you good comparables.
Since the Great Recession and housing crisis appraisers are looking closely at other sales of comparable properties located in the same general neighborhood in order to get a more accurate value for the property in question. If there are few comparable properties nearby, appraisers will tend to view the property conservatively and the appraised value will reflect a lower price.
Given that properties in your immediate neighborhood have gone into foreclosure but the distressed inventory has now changed hands, you might have greater luck finding a lender willing to review your file. But until homes have sold again, and for higher prices, appraisers will still point to the foreclosures as the price floor.
We’d suggest you find a good mortgage lender or broker in your area and chat with them about your situation. We wouldn’t suggest you apply yet until you have some comfort level that values are at a point that would allow you to refinance your existing loan.
We’d also suggest that you talk to a one or more local real estate brokers in your area and find out as much as you can about what has sold in your area If these brokers tell you that homes of your type are starting to sell and there are new comparables – perhaps not even in your immediate neighborhood, but relatively close by – but that show the market improving, you might have better luck this time with your lender.
It might only cost you the application fee and the cost of the appraisal to find out whether you can refinance or not, but it’s worth the try.
You might also try to determine whether your loan qualifies for refinancing under one of the government programs through www.makinghomeaffordable.gov. While your loan balance may be too high for the program, depending on where you live and if you are in a high cost area, it’s possible that you could qualify. You might also qualify for a special refinance program offered by your own lender.
If you have extra cash on hand, consider paying down your mortgage so that you qualify for a conventional loan, at $417,000. You’ll have more options at that loan limit rather than if your loan is a jumbo.
Time works in your favor. Interest rates aren’t going up much, if at all, over the next few months or even over the next year. The expectation is that for the next year or so, we will continue to see historically low mortgage interest rates, which will allow homes in your neighborhood to continue to recover in value, hopefully enough so that you can refinance.