Refinance with LTV Greater Than 100%

Refinance with LTV Greater Than 100%

Our home is worth a lot less than what we paid for it. Will we qualify for a 30-year fixed refinance?

Our home is worth a lot less than what we paid for it. We have a 5-year adjustable mortgage, which is about to come up for adjustment. Will we qualify for a 30-year fixed refinance?

  • Now is a great time to refinance a mortgage.
  • Refinancing with an LTV greater than 100% is challenging.
  • Two government-sponsored programs can help homeowners with 100%+ LTV.

Now is a great time to refinance because as I write these words in September 2010 mortgage rates are at historically low rates.

Editor's Note: President Obama announced changes to the HARP (Home Affordable Refinance Program) mortgage program. The new HARP has no loan-to-value cap, for a fixed-rate mortgage refinance, if your loan is owned or insured by Fannie Mae or Freddie Mac. If you are looking to refinance a home with limited or no equity, make sure to look at HARP.

Loan-to-Value at a Glance

It may be a challenge for you to refinance when the value of your home is less than the balance of your existing loan. In mortgage banking jargon, what you described is a loan-to-value (LTV) ratio greater than 100%

What is LTV? LTV refers to the percentage that results when the amount you owe on the loan is divided by the home's value. Thus, if your loan is for $80,000 on a $100,000 home, your loan to value would be 80,000 divided by 100,000 or 80%. That also means that you have 20% equity in your home, or $20,000 of equity value in this scenario. Another way to think about loan-to-value is the opposite of equity. Equity is determined by subtracting the amount owed from the value of the home and would also register as a percentage when the difference is divided by the value of the home. You will find that the percentage LTV and the percentage of equity will always add up to 100%.

Cumulative Loan to Value or CLTV (sometimes referred to as "combined loan to value") refers the total amount owed. It comes into play most often when two loans must be taken into consideration. For instance, if you are securing a first mortgage for 80% of the home's value and a second mortgage for 15% of the home's value, the LTV of the first is 80% and the LTV for the second is 15%, but the CLTV is 95% as the sum of both loans is equal to 95% of the home's value. In this scenario, your equity is 5% of the home's value.

When you apply for a loan, LTV or CLTV will be taken into account and will be used to determine several things depending on the mortgage program you're using. For most programs, you will need a certain minimum credit score to qualify for higher loan-to-value.

A rule of thumb is to keep the LTV of a home mortgage below 80%. This is a challenge in 2010 for homeowners who bought in 2003-2008 just before home values took a precipitous and deep drop. What can a person who owns a home with a 100%+ LTV and needs to refinance do?


Home Affordable Refinance Program (HARP) allows home owners to refinance their existing mortgages to current low interest rates. It is designed for homeowners who are current on their mortgage payments but are unable to refinance to a lower interest rate because their home values have decreased.

Homeowners may be eligible if their first mortgage does not exceed 125% of the current market value of the home. For example, if your property is worth $200,000 but you owe $250,000 or less on your first mortgage, you may be eligible. See the HARP Web site for a brief questionnaire to see if you qualify.

FHA Short Refinance Program

The Federal Housing Administration (FHA) initiated a new government loan program to assist homeowners who have seen their property values drop. The program, called the FHA Short Refinance, began on September 7th, 2010 and is slated to run through December 21st, 2012. The goal is to help borrowers in a negative equity position refinance into a more secure loan. Under the FHA Short Refinance program, a lender reduces the principal balance on the mortgage. The reduced-balance loan then passes from the private hands of the lender or investor that owns the loan to a loan that is guaranteed by the federal government. Previous government programs attempted to aid those who are behind on their mortgage payments. The new FHA Short Refi is targeted to borrowers who are current and can afford their payments, borrowers who could not qualify for the different loan modification programs available.

See the resource FHA Refinance to learn more about the FHA short refinance program.

I hope this information helps you Find. Learn & Save.