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Homeowners who owe more than their house is worth still have some options for refinancing their mortgage.

The options are more limited today because home values have largely recovered and most homeowners are no longer “underwater” on their mortgages. But there are a few ways of finding relief, mainly through government programs. 

Main option: HARP

The main way to refinance your mortgage if you’re underwater is through a government program called the Home Affordable Refinance Program, or HARP. Most lenders offer this program through Fannie Mae and Freddie Mac. But there are specific requirements, including:

  • Your mortgage must already be a Fannie Mae or Freddie Mac loan.
  • The mortgage must have been originated on or before May 31, 2009.
  • Your loan amount must be 80 percent or more of the value of your home, called the loan-to-value (LTV) ratio.
  • You also must be current on your mortgage payments for the past six months and have no more than one late payment in the past 12 months.

The HARP program has been widely used by millions of homeowners, and the government estimates more than 143,000 underwater homeowners can still qualify before the program ends on December 31, 2018.

Fannie Mae and Freddie Mac will replace the HARP program with a new program at each agency, focusing on homeowners with LTV ratios of at least 95 percent.

Talk with your lender

Even if you don’t qualify for the government refinance programs, your lender might be willing to offer some kind of loan restructuring to reduce your payment or delay payments for a certain period. Be sure to ask about additional fees or penalties in doing so.

“There are also lenders out there that have their own in-house programs for refinancing high-LTV loans, but you have to shop around to find them,” says Susan Verbeck, chief lending officer at Community First Credit Union of Florida.

If restructuring the loan is not an option, ask about the possibility of a short sale. This means selling your house at market value or below what you owe, with the remaining loan balance forgiven by the lender. Be aware that these transactions are complicated and may temporarily hurt your credit score.

Pay your way out

Being underwater is difficult since you can’t really control the market value of your home. However, you can look at ways to increase your monthly mortgage payments to reduce the overall loan balance. This will help you owe less than what the home is worth and improve your credit profile.

“Work with your lender, get the amortization schedule and figure out what principle is due,” says Rick Sharga, executive vice president of Ten-X, an online real estate marketplace.

Increasing your payments “can change a lot on your mortgage debt” and “get that principle balance below that underwater threshold,” he adds.