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Can I refinance an underwater ‘kiddie condo’?

Q: I got a kiddie condo loan with my son almost 10 years ago. He has moved out and my daughter now lives in the home while she attends law school. The home is underwater. I would love to refinance it but don't know if I can. My son no longer lives there and my daughter's credit won't qualify. My husband and I have excellent credit and have always made all the payments on this home.

A: If the home is underwater, there is really only one possible refinance avenue to explore: the Home Affordable Refinance Program (HARP).

However, the key item is that the loan must be owned or backed by Fannie Mae or Freddie Mac and originated prior to June 1, 2009. Without these, your loan cannot be considered for the program.

Looking up your loan

To start with, see if you can look up your loan with either Fannie Mae or Freddie Mac. If it is there, you'll want to proceed by getting in touch with your servicer (the number or website should be on the mortgage statement or bill). Second homes and investment properties are eligible for the program, so your kiddie condo should be, regardless of current occupancy.

Credit score

Your daughter's credit does come into play, but she could be eligible for a refinance even if her score is as low as FICO 620. However, a weak credit score will drive up the cost of the loan--whether via a higher rate or fees or both--and may diminish the value of the refinance.

If the loan is eligible, you'll want to talk to your servicer about terms and fees. If your servicer does not participate in HARP, you are free to go shop the open market for a deal.

More help from HSH.com

  • What is a rate and term refinance?

    Homeowners have a variety of reasons for refinancing and each reason can indicate that one refinance option or another makes the most sense.
  • When refinancing at a higher rate makes sense

    Trade your old mortgage for a new, higher-rate version? There are times when it actually makes sense.
  • Should I pay off a mortgage early?

    By making extra principal payments or refinancing your mortgage, you could pay a lot less interest and free yourself from your mortgage ahead of schedule. Here are the pros and cons of retiring your mortgage early.
  • How does a refinance in 2017 affect your taxes?

    After a mortgage refinance, there are some specific "dos" and "don'ts" you need to know prior to filing your income taxes, as well as a few pointers that can help you lower your tax bite.

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