High LTV Refinance Option (HIRO) for Homeowners

House with trees in front yard and snowing

As a homeowner, the last thing you want is to be underwater on your mortgage. This basically means that you owe more money on your home than it’s worth. Not good, right?

It should come as no surprise that underwater mortgages have a higher chance of going into foreclosure. But just because you might be stressed about your home loan now doesn’t mean you can’t seek assistance. Let’s take a closer look at these mortgages and how the Fannie Mae High LTV Refinance Option (HIRO) may be an option for you.

About the High LTV Refinance Option (HIRO)

The HIRO program went into effect on November 1, 2018 as a replacement to the Home Affordable Refinance Program (HARP). It’s impossible to understand HIRO without knowing that nearly 3.5 million underwater homeowners used HARP to refinance their mortgage. As we'll discuss later in the article, this type of refinance can help you regain control of your mortgage.

Defining an underwater mortgage

Consider the scenario where you bought a $300,000 house last year. You stay current with the first few payments only to learn that home values are plummeting in your area. Now your biggest investment is only worth $275,000.

In this case, your mortgage is $25,000 more than your home’s value. You are now “underwater” or “upside-down” on your home loan.

We often reference the housing crisis in 2008 when discussing underwater borrowers. It was during this time that homeowners with adjustable-rate mortgages (ARMs) struggled to make their payments. Maybe you even remember a loved one having to sell their home as a result.

Are you underwater with your mortgage?

Here's how you can determine if you are upside-down with your mortgage.

Calculate how much you owe

Check your most recent statement and find the remaining balance on your loan. Keep in mind that when you first start paying back a mortgage, only a fraction of the funds is applied to the principal. Don’t hesitate to contact your mortgage provider if you’re having trouble verifying the balance.

Figure out how much your home is worth

This is the most time-consuming part of the process. If you just want a quick estimate of your home’s value, we suggest talking with an experienced real estate agent. Those who would prefer a more accurate figure should hire an appraiser.

Subtract what you owe from your home’s current value

At this point, you’re ready to face the music, good or bad. Perhaps you discover you’re underwater on your home by as much as $30,000 or as little as $5,000. Whatever the amount, it’s important to come up with a solution as soon as possible.

How to get back on track

Don’t get discouraged if you find yourself in a situation where you’re underwater on your mortgage. There are steps you can take to rebuild equity, both on your own and with the help of Fannie Mae. Explore these options for getting out of the red with your mortgage.

Continue making payments

Even if you did nothing but make your normal payments, you would eventually turn things around with your mortgage. But why wait potentially years for that to happen? Revamp your budget, land a second job, and begin making extra mortgage principal payments. Again, though, be sure these payments go toward your principal balance and not interest.

Recast your mortgage

This involves paying down a significant portion of your loan and then “recasting” your existing loan. Basically, your lender recalculates your payments based on the lower balance, while your rate and term length stay the same. It’s worth asking if your loan qualifies for mortgage recasting.

Refinance using a HIRO mortgage

Fannie Mae’s program remains an option for borrowers even if they have little or no equity in their home. You must benefit from the refinance in at least one of the following ways:

Lower interest rate
Reduced monthly principal and interest payment
Shorter amortization term
A more stable mortgage product, such as switching from an adjustable-rate mortgage to a fixed-rate mortgage

How the HIRO mortgage program can help you

Are you in a part of the country where home prices are falling? If you have a loan-to-value (LTV) ratio above 97%, you may qualify for a HIRO. There’s no expiration for the program and you don’t have to worry about credit scores or a DTI limit.

Familiarize yourself with rates, guidelines, and eligibility before moving forward with your application.

Talk with your lender

A high LTV refinance could be the difference between staying in your home and foreclosure. Contact a dedicated mortgage consultant to review your loan options.