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Being turned down for refinancing is frustrating when your current mortgage rate is higher than today's mortgage rates. FHA guidelines may permit refinancing your mortgage even if you have little to no home equity.

Little or No Home Equity? FHA Refinancing Can Help

You bought your home near the top of the market and your mortgage rate is higher than today's mortgage rates. You also have a home equity loan, and cannot qualify for a conventional mortgage refinance. FHA guidelines allow for higher loan to value (LTV), which may help you qualify for refinancing your current conventional or FHA mortgage to an FHA mortgage loan with a lower mortgage rate.

FHA Guidelines: Understanding LTV and CLTV

Loan to value (LTV) and combined loan to value (CLTV) ratios are used to compare the balances of your mortgages to your property's present value. Here's an example. If your home is worth $200,000. and your first mortgage balance is $140,000, the LTV for your primary mortgage loan is 70%, which is calculated by dividing $140,000 by $200,000.

Let's say you also have a home equity loan with a balance of $48,000. Adding the primary and home equity mortgage balances together provides a total of $188,000. Divide this amount by the current home value of $200,000, and the CLTV is 94%. With conventional mortgage lenders limiting maximum loan amounts to 80%-90% LTV, it would be impossible to refinance with a CLTV of 94%. The good news is that FHA guidelines may permit unlimited CLTV on straight refinancing (no cash out) provided the following conditions are met:

  • Refinance mortgage amount (your new first mortgage) does not exceed FHA loan limits.
  • You have sufficient income to make your new payment(s).
  • If the first and second mortgage CLTV doesn't exceed 96.5%, you can replace them with a new FHA first mortgage. If the first mortgage (LTV) does not exceed 96.5%, but the combined first and second mortgage (CLTV) does, you can refinance the first mortgage as long as the second mortgage holder is willing to subordinate the loan to the new first mortgage.
  • You meet FHA eligibility and underwriting guidelines.

FHA-approved mortgage lenders can provide more information specific to your needs; if you're having problems making your mortgage payments, please contact your mortgage lender or an FHA-approved housing counselor for assistance.


Karen Lawson
Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.