- The Washington Times - Friday, January 15, 2010

Q.We purchased our home two years ago for $420,000 and put down 20 percent.

We have a 30-year fixed rate at 6.125 percent and a balance of about $323,000.

We were hoping to take advantage of today’s low rates and approached our bank about refinancing. The branch manager said a refinance isn’t possible because the value of our home has dropped.

We haven’t obtained an appraisal yet, but based on recent sales in our subdivision, we think our house will appraise for around $380,000.

I thought there was a government program that allowed homeowners who have lost value in their homes to refinance. Do you have any suggestions?

A. Fannie Mae and Freddie Mac, the two mortgage giants recently taken over by the federal government, are offering a program called “Refi Plus.” The program allows folks with little or no equity in their home to refinance to market rates.

Like most government-sponsored programs, it comes with several conditions. A good loan officer can dissect your situation and see whether you are eligible for a Refi Plus refinance, but let me outline the program’s basics.

c Your existing loan must currently be serviced by Fannie or Freddie.

c The program, under certain conditions, may allow a refinance even if your loan amount is as high as 125 percent of the home’s current value.

c Private mortgage insurance (PMI) is not required if the original loan doesn’t carry it. If PMI is in the existing loan, it will be required. However, PMI companies generally won’t insure a Refi Plus loan, making all homeowners with existing PMI on their loans unable to refinance.

c If there is a second trust, it must be subordinated. While Freddie and Fannie allow this, most second-trust lenders won’t allow a subordination. This makes homeowners who have a second trust unable to refinance.

c The higher the loan-to-value (LTV) ratio, the higher the interest rate.

c Under certain conditions, a property inspection waiver can be obtained, which means an appraisal is not required.

c Cash out is not allowed.

The first thing you need to do is determine whether your loan is owned or serviced by Fannie or Freddie. You can check their Web sites (http://loanlookup.fannie mae.com/loanlookup and https://ww3.freddiemac.com/corporate) to find this information.

The next thing to do is seek out an experienced and reliable loan officer. If you don’t know any, ask trusted sources such as neighbors, co-workers and family members for a recommendation. The best way to find a good loan officer is through a positive recommendation.

If your loan is not owned by Fannie or Freddie, you still may be eligible for a refinance.

If your property appraises for $380,000 as you suggest, your loan-to-value ratio is at 85 percent. Most lenders will allow a refinance without cash out to 90 percent.

Moreover, most lenders offer a program with lender-paid mortgage insurance. This allows you to refinance a loan with an LTV greater than 80 percent and still avoid private mortgage insurance.

You also may want to consider refinancing to an 80 percent loan by paying down the balance. Putting a little cash into the house in order to get the best mortgage terms may not be a bad idea.

Once again, a good loan officer can outline your options and help you decide what’s in your best interests.

Henry Savage is president of PMC Mortgage Corp. Send e-mail to henrysavage@pmcmortgage.com.

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