How to Refinance When Your Home Value Has Changed

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Changes in the value of your home, whether it has increased or decreased, can significantly impact your refinancing experience. In this article, we will explore the possibilities and considerations associated with refinancing when your home value has changed.

Can You Refinance if Your Home Value Has Dropped?

Yes, it is possible to refinance your home even if its value has dropped. However, there are some factors you should consider.

One important aspect is your loan-to-value (LTV) ratio. Your LTV ratio compares your mortgage loan amount to the appraised value of your home and plays a crucial role in the refinancing process.

When the value of your home decreases, your LTV ratio will likely increase if all other factors remain unchanged. This may affect your ability to refinance, as lenders typically have a maximum LTV ratio they are willing to accept.

Refinancing When Home Value Decreases

If your home’s value has dropped significantly, you may find it challenging to meet the LTV requirements for traditional refinancing.

However, there are some options you can explore to overcome these challenges:

Government Programs

Some government-backed refinance programs, similar to the Home Affordable Refinance Program (HARP), may have more flexible LTV requirements. Although the original HARP program ended in 2018, Fannie Mae and Freddie Mac have established two HARP replacement programs to help homeowners refinance their mortgages.

1. Fannie Mae High Loan-to-Value Refinance Option

The Fannie Mae High Loan-To-Value Refinance Option (HIRO) program allows homeowners with a loan owned by Fannie Mae to refinance even if their loan balance is higher than their home’s value. The HIRO program also permits manual underwriting to help upside-down homeowners with special circumstances.

2. Freddie Mac Enhanced Relief Refinance

The Freddie Mac Enhanced Relief Refinance® (FMERR) program was created for underwater borrowers who currently have a Freddie Mac-owned loan. FMERR can help homeowners benefit from a lower payment or faster payoff with no minimum credit score requirement.

Please note that, as of early 2024, these HARP replacement programs have been suspended until further notice, as they received very few applicants since their introduction.

Fannie Mae RefiNow™

Fannie Mae RefiNow gives low-income borrowers a way to refinance with an LTV ratio of up to 95% and a debt-to-income (DTI) ratio as high as 65% with no minimum credit score requirement. The RefiNow maximum DTI ratio is much higher than other conventional refinance programs that typically don’t allow your monthly debt to exceed 50% of your monthly income.

An appraisal is required to verify your home’s value, but eligible borrowers may get a $500 credit to cover the upfront cost of the home appraisal.

Freddie Mac Refi Possible℠

The Freddie Mac Refi Possible℠ program is similar to Fannie Mae RefiNow, except it allows up to a 97% LTV ratio on a Freddie Mac-owned loan for a one-unit home, as opposed to the 95% cap for Fannie’s program. These refinance loans have no minimum credit score requirement and your DTI ratio can be up to 65%.

Streamline Refinance Programs

If your current mortgage is backed by the Federal Housing Administration (FHA), United States Department of Agriculture (USDA) or the Department of Veterans Affairs (VA), you may qualify for the respective streamlined refinance option.

For streamlined refinance loans, lenders typically do not factor in your home’s current value, and there is no required appraisal, income verification or minimum credit score. Instead, your eligibility is generally based on your mortgage payment history.

FHA loan homeowners may be eligible for the FHA Streamline Refinance Program, while individuals with USDA loans should consider the USDA Streamlined Assist Refinance Program. The streamlined refinance loan for VA borrowers is known as the VA interest rate reduction refinance loan (IRRRL).

Mortgage Modification and Recasting

If you don’t meet any of the criteria for HARP replacement programs or streamlined refinance loans, you may ask your lender about a mortgage modification. Your current lender’s servicing department may reduce your payment by extending your loan term or temporarily lowering your monthly payment.

Alternatively, if you’ve come into a large sum of money and want to lower your payment without refinancing, you can use it to pay down your loan balance and ask the lender to recast your mortgage. Recasting your mortgage means your monthly payment will be adjusted based on the new loan balance at your current interest rate. This may effectively lower your mortgage payment without going through a full refinance.

Explore Different Lenders

Different lenders may have varying requirements, so it may be worth shopping around and checking with multiple lenders to find one that may be more flexible, given your specific situation. Refinancing your home when its value has dropped requires careful consideration of your options to find the best solution for your financial needs.

How to Increase Appraised Value of Home to Refinance

Depending on your individual circumstances, you may be looking to target the root of your refinancing issues by increasing the value of your home. Increasing the appraised value of a home can be challenging since the appraisal process is typically based on factors like comparable sales, your property’s condition and local market trends.

However, there are some steps you can take to potentially improve the perceived value of your home:

  1. Address maintenance issues: Ensure that your home is in good condition by addressing any maintenance concerns and making necessary repairs. Properties that are well-maintained are likely to receive a more favorable appraisal.
  2. Home upgrades: Make strategic and cost-effective improvements to your home, such as kitchen and bathroom upgrades, landscaping or adding energy-efficient features. Ensure that any improvements are in line with the preferences and trends in your local real estate market.
  3. Document improvements and features: Keep detailed records of any upgrades or renovations you’ve made to your home, providing receipts and before-and-after photos to your appraiser. During the appraisal, point out any unique or valuable features of your home, such as custom-built additions, high-end finishes or energy-efficient upgrades.
  4. Attend the appraisal: Be present during the appraisal to provide additional information about your home and answer any questions your appraiser may have. This can help ensure that all positive aspects of your home are considered.

Can You Refinance if Your Home Value Has Increased?

If your home value has increased, you can still refinance your mortgage. However, you may be wondering: Should I refinance if my home value has increased?

Refinancing When Home Value Increases

Fortunately, if your home’s value has increased, you may be in a favorable position to refinance your mortgage. When the value of your home goes up, it can reduce your LTV ratio, which is beneficial during the refinance process.

Here are some potential benefits to consider when deciding if you should refinance with an increased home value:

  • Favorable interest rates: With a higher home value, your LTV ratio may be lower, making you eligible for more favorable loan terms and interest rates.
  • Lower monthly payments: Refinancing to a lower interest rate can potentially result in lower monthly mortgage payments, saving you money over the life of the loan.
  • Adjusted mortgage terms: You may have the opportunity to change your loan type (e.g., from an adjustable-rate mortgage to a fixed-rate mortgage) or adjust the loan terms to better suit your financial goals.
  • Access to equity: If your home has appreciated significantly, you may have built up home equity. Refinancing can allow you to access that equity either through a cash-out refinance or by securing a lower loan balance and interest rate.

Whether your home value has increased or decreased, exploring your refinance options with careful consideration may be beneficial for your unique situation. Consider consulting with a mortgage professional or financial advisor to help determine your best course of action.

Kara Johnson

Kara is a Rye, New York-based author and contributing writer for She is a graduate of Hampshire College.

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