Can we do a "cash-in" refinance?

Q: My husband and I purchased a vacation home 5+ years ago, at the height of the market. We put down a considerable down payment but financed the home with an interest only loan. We would like to refinance to conventional loan, but home is now worth less than what we paid. We are willing to pay down the mortgage in order to improve the loan to ratio value. Can we do this and will lenders be willing to work with us, given our circumstances?

A: Certainly. This is called a cash-in refinance, and is more popular than you might think these days. That said, you may have to come up with a fair bit of cash, depending upon how underwater your home is relative to its mortgage. You'll also need to pay closing costs again, and will also face much more rigorous underwriting standards. You should probably start by checking with the mortgage lender who holds the existing loan to see if they offer any deals for good clients.

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