Q: Can I refinance with an LTV above 80%?
A: The short answer is "yes," you can get a loan in excess of 80 percent loan to value (LTV) in a refinance transaction.
With home prices rising strongly in recent years, you may actually have more equity in your home than you think. To reckon your current LTV ratio and equity stake, check out HSH's Home Equity Calculator and Projector.
Fannie Mae and Freddie Mac will back non-cash-out refinance loans with LTV ratios of as high as 97% for fixed-rate mortgages and 95% for ARMs. If you are hoping to take cash out of the property, however, the maximum LTV is 80% for an owner-occupied residence. LTV ratios for second homes or investment properties are even more restrictive -- 90% for a rate and term refinance for a second home, and 75% for an investment property.
If the new loan is to be backed by Fannie Mae or Freddie Mac, your mortgage lender will need to secure a Private Mortgage Insurance (MI) policy on your loan.
Of course, a lower loan-to-value ratio is often better. While Fannie and Freddie may allow loans with very high LTV ratios, some lenders impose their own "overlays", where they won't write refinance loans above 90% LTV unless an applicant has stellar credit, or may impose additional fees when they do.
If you've got a really high LTV ratio -- or if your credit isn't top-shelf -- you might consider a refinance through the FHA program, where you need as little as a 3.5 percent equity stake. You will have an upfront mortgage insurance premium, and will also face recurring MI premiums that will run for the life of the loan, so that may be a drawback, but getting access to a lower interest rate may save enough as to make it worthwhile. To compare MI costs of an FHA loan versus a conforming high-LTV loan, use HSH's FHA MI calculator to see costs for both kinds of loans over time.
If you already have an FHA-backed loan, the FHA streamline refinance program may be a faster, lower cost way to get the lower interest rate you're after. You can't take any cash out of the property, but no appraisal of the home is required, and there is no income check, no credit score review and no verification of employment. You'll essentially be swapping out your old interest rate for a new, lower one, and as fast and easy as it can be.
