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Even when home prices are rising overall, they may fall significantly in some areas. That can lead to a high loan-to-value ratio, or a situation in which a homeowner has a mortgage balance that is close to, or even higher than, the home’s market value. Having little or no equity can make it difficult for homeowners to refinance, even with a high income and credit score, and can leave them stuck in mortgages with high interest rates. Fortunately, several refinancing programs can help borrowers in that situation.

Fannie Mae and Freddie Mac
The Home Affordable Refinance Program (HARP) ended in 2018. Fannie Mae introduced the High Loan-to-Value Refinance Option (HLRO) for homeowners with little, or even negative, equity who didn’t take advantage of HARP.

If you have a Fannie Mae mortgage with a Note Date on or after October 1, 2017, at least 15 months have passed since that date, and you are current on your payments, you may be able to refinance. You may not have had more than one 30-day delinquency in the past year, any 30-day delinquency in the past six months or any delinquency greater than 30 days. Your mortgage may not have already been refinanced through a Fannie Mae program. There is no limit on debt-to-income ratio and no minimum credit score.

HLRO may reduce your monthly payments, lower your interest rate, shorten the amortization term of the loan or switch you to a more stable loan product, such as a mortgage with a fixed instead of adjustable rate. If you currently have mortgage insurance, it must be transferred to the new mortgage.

Freddie Mac’s Enhanced Relief Refinance Mortgage is similar to HLRO. It’s for homeowners who are current on their payments but who don’t have enough equity for a standard refinance, especially those suffering due to declining property values.

Other Federal Refinancing Programs
The Federal Housing Administration has a refinancing program that can help if you have a high LTV, even more than 100 percent. Your loan must be current, and you must extend existing mortgage insurance to the new loan.

The Veterans Affairs Administration offers the VA Interest Rate Reduction Refinance Loan. If you choose this option, you will probably have to pay a VA funding fee, but you won’t need an appraisal, credit underwriting or mortgage insurance. Although there is no limit on the amount you can borrow to refinance, the VA will usually only assume up to $36,000 in liability per veteran.

Conventional Loans
For a conventional mortgage refinance, many lenders require at least 20 percent equity. You may be able to refinance with less equity, but your new loan will probably be subject to a higher interest rate, fees and private mortgage insurance.

Explore Refinancing Options
If you would like to lower your monthly mortgage payments but don’t have enough equity for a traditional refinance, other avenues are available. Contact your lender to find out if you are eligible for one of these programs.