Why a lower value matters
Lenders compare what you owe with what the home is worth. When the value drops, you have less equity, and the loan looks riskier to a lender. That can mean higher pricing, mortgage insurance or fewer programs to choose from.
The good news is that your current loan and rate don't change because the value dropped. You can keep making payments as usual while you look at options.
Check where you stand first
Compare your balance from your latest mortgage statement with a recent value estimate. That gives you a rough sense of your equity before you apply. Your loan consultant can tell you which programs fit.
Keep in mind that online estimates can be off in either direction. The value a lender uses usually comes from an appraisal or a waiver based on property data.
Options when value is lower
- FHA Streamline: if you have an FHA loan, it often needs no new appraisal
- VA IRRRL: if you have a VA loan, it often needs no new appraisal
- Conventional refinance with PMI, if you still have some equity
- Pay down principal at closing to meet a program's requirements
- Wait while you pay down the balance and the market changes
Streamline refinances
An FHA Streamline or VA IRRRL is built to lower the rate on an existing FHA or VA loan with less paperwork. Because many of these don't require a new appraisal, a drop in value may not stand in the way. You'll still need to meet the program's payment history and benefit rules.
Appraisal waivers
Some conventional refinances qualify for an appraisal waiver, which uses existing property data instead of a new appraisal. Whether you qualify depends on the loan and the data available. When an appraisal is required and provided by an approved agent, it is covered under ZERO Closing Costs (restrictions apply).
Is refinancing still worth it?
A lower value can raise your pricing or add PMI. Compare the new payment, including any mortgage insurance, with what you pay today. If the savings are small, waiting while you pay down the balance may be the better move. Your loan consultant can show you both paths.
If you owe more than the home is worth
Being underwater limits most standard refinance options. Special high-LTV refinance programs have been offered in the past, but they come and go. Talk with your loan consultant about what is available now. In the meantime, keep making payments on time and, if you can, pay a little extra toward principal.
