125% Refinance Home Loan Program

In an effort to slow the trend of mortgage defaults and foreclosures, the federal government enacted the Home Affordable Refinance Act, which is designed to provide 125% home loans to borrowers refinancing with a home loan backed by Fannie Mae or Freddie Mac.

Refinancing under the 125% home loan program provides an opportunity for homeowners with negative equity to reduce their mortgage rate with a home loan up to 125% loan to value. The catch is that the 125% loan qualifying guidelines are strict and good credit is required.

Homeowners with no home equity used to have the option of getting a 125% home loan using a second mortgage or home equity loan, but now high loan to value home loans have become difficult to find, especially for cash out. FHA loans offer one of the best cash out refinance home loans.

125% home loans have an inherent risk involved, meaning that if you decide to sell your home, there would be no equity to cover any closing costs or real estate commission, and there would be an amount due for the balance of the home loan.