How to Refinance an Underwater Mortgage

underwater mortgage

After the housing market crash in 2008, many people found themselves underwater on their mortgage when their home’s value dropped.

If you owe more money on your home than it’s worth, you are probably wondering how you can refinance your mortgage.

In this article, we will explore some of the refinance options available to borrowers underwater on their mortgage.

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What is an Underwater Mortgage?

When the loan balance on a property exceeds the fair market value, the home is considered underwater. Homeowners with an underwater mortgage will have difficulty selling their homes or refinancing their mortgage to take advantage of today’s low-interest rates.

This can be especially detrimental to homeowners with an adjustable-rate mortgage whose rate has increased to a point where they can no longer afford their mortgage payments.

Because most refinance loans require the homeowner to have at least a 20% equity stake. Refinancing an underwater mortgage takes a special type of refinance program. Fortunately, the Government has stepped in and created programs that help those with an underwater mortgage.

Home Affordable Refinance Program

In 2010 the Obama Administration created the HARP program to help homeowners with an underwater mortgage refinance their loan regardless of the loan-to-value ratio. HARP is available for all mortgage loans owned by Freddie Mae and Fannie Mae.

HARP is designed for homeowners whose property values have dropped and now have an underwater mortgage. Allowing them to refinance your mortgage into a lower interest rate reducing monthly payments by hundreds of dollars per month. Or refinance from an adjustable-rate mortgage into a fixed-rate mortgage.

To qualify, you must be current on your mortgage payments with no more than a single late payment in the past 12 months. A credit check, asset, and income verification, and a new home appraisal will be required. The minimum credit score required for HARP is 620-640, depending on the lender.

HARP Eligibility Requirements:

  • No late payments on your mortgage in the past 6 months and no more than one 30 late payment in the last 12 months
  • Property is your primary residence, investment property, or second home
  • The loan was processed on or before May 31, 2009
  • Property value has decreased
  • If you have little or no equity in your home
  • Fannie Mae or Freddie Mac owns your loan. (Check the Fannie Mae Loan Lookup tool)
  • Have not used HARP previously

Streamline Refinance

If you have a government-backed home loan such as an FHA, VA, or USDA loan you can do a streamline refinance even if you’re underwater on your loan. A streamline refinance means the process is streamlined to be quicker and easier than a conventional refinance.

Another great benefit of a streamline refinance loans is that they do not require income verification. In fact, some lenders may not even require a credit check.


  • Have a Government-insured mortgage
  • 210 day waiting period
  • Current on mortgage payments
  • Refinance must produce a net tangible benefit
  • 620 credit score

Streamline Refinance Program Benefits

• A home appraisal is not required

 Lower your monthly payment

 No income verification

• Minimal documentation required

• Quick and easy process

 Lower your interest  and MIP rates

• Lower your mortgage insurance rate

 No loan-to-value limits (You can be underwater on your mortgage)