As a homeowner, there are several reasons why you would want to refinance your home: to lower your rate, to shorten or lengthen the term of your loan, or to pull out some of the equity in your home. If your loan-to-value (LTV) ratio ꟷ the comparison between the amount of your loan and the value of your home ꟷ is high, you will have a hard time getting a loan with the typical programs that lenders offer.
Fortunately, the Federal Home Loan Mortgage Corporation (Freddie Mac) created the Enhanced Relief Refinance Mortgage Program, which might help with your situation.
The Issue of High LTV Ratios
Lending institutions usually deal with other people’s money, and they have to calculate various risk factors before they close on a loan. One of their primary considerations is the value of the collateral for the loan, which, in this case, is your home. When a borrower defaults on their mortgage, banks rely on selling the house to recoup their funds; therefore, it is too risky for them to allow you to borrow more than, or even close to, what the home is worth.
Why the Program was Created
Because lenders in the private sector shy away from high LTV loans, Freddie Mac, a government-backed agency, decided to introduce the Enhanced Relief Refinance Mortgage Program. The premise of the program is that providing you with more favorable loan terms will only increase the chances that you will continue to pay your mortgage on time. The fact that you’re having an issue with the value of your home shouldn’t hinder your ability to refinance and improve your financial situation.
How a Home Could be Worth Less than the Original Loan Amount
There are two types of homeowners who have LTV issues and could use such a program:
- People whose homes are in a declining real estate market. If you purchased a home for $200,000 and it is now worth $150,000, even if you originally paid a down payment of 20%, your house could be worth less than the loan amount.
- Some people buy a home with a negative amortization loan, so their monthly payments are not enough to cover the principal of the loan. In such cases, the loan amount increases with time, and they could end up owing more than the house is worth.
Enhanced Relief Refinance Mortgage: Requirements and Guidelines
While the Enhanced Relief Refinance Mortgage Program is designed to help people whose homes are in the red, it has very specific criteria. To be eligible:
- Your home has to be a one to four-family primary residence or investment property, or a single-family second home.
- Your current mortgage must be at least 15 months old.
- Your existing loan has to be with Freddie Mac.
- You can’t have been more than 30 days late on any of your mortgage payments in the past six months, or more than once in the past twelve months.
- The LTV of your loan has to be higher than the maximum ratios for standard loans.
- If you’re getting an adjustable-rate mortgage, the loan amount can’t exceed 105% of the value of your home (there is no maximum LTV for fixed-rate loans).
- You can’t use the program to dip into the equity of your home and take out cash.
If you meet all of these criteria, you might be eligible for the Enhanced Relief Refinance Mortgage. For more information or to apply for a loan, feel free to call the Pacific Mortgage Group at (800) 691-1665, or contact us online. We have many years of experience and will be happy to guide you through the entire process.