Can I Refinance My VA Loan If I Am Upside Down On My Mortgage?

A very common question related to VA refinancing is whether or not you can get a refinance on a VA loan if you are currently upside down on your mortgage.

Simple Answer: Yes you can!

Just to be clear, being “upside down” on a mortgage is when you owe more on your mortgage than what your home is actually valued at in the present economy. This is a highly unfortunate situation that many American home owners are facing today.

Here’s an example scenario:

Let’s say that you bought a home back in 2006 for $250,000. The 2006 economy was pretty strong, and home prices in many markets throughout the country were steadily increasing in value.

Now let’s fast-forward to today. The recession that started in 2008 has been declared “over” by the National Bureau of Economic Research (NBER for short), and the economy is in the first stages of recovery.

Considering the current housing market, it’s possible the home you bought in 2006 won’t sell for the same price or higher today. For this example, let’s say the market price in your area is now $200,000.

The catch is even though the market price is now $200,000 today, you still owe the remaining principal on the $250,000 on the mortgage you took out in 2006. Unless you’ve made extra payments to pay down the loan, it’s likely your balance is still greater than the $200,000 your home is worth.

In other words, you are upside down on your mortgage.

With that said, there is some great news for veterans:

In 2008 a law titled the “Veteran Benefits Improvement Act” was passed to assist veterans who were upside down on their mortgage. This law created the opportunity for eligible veterans to get a VA refinance and drastically change their mortgage state of affairs.

The Veterans Benefits Improvement Act of 2008 was signed by President Bush on October 10, 2008 and was officially applied by the VA on October 16, 2008.

The enhancements made to the VA home loan program are as follows:

  • The VA’s ability to guarantee both VA adjustable rate mortgages (ARM for short) and hybrid adjustable rate mortgages (similarly called HARM for short) was extended to September 30, 2012. Prior to this extension, the VA would not have been allowed to guarantee the ARM and HARM programs after the end of September back in 2008.
  • Eligible veterans can now apply for and receive a Cash Out Refinance Loan for up to 100% of the VA-appraised value of a home. *However, most lenders will only allow cash out to 90% of the appraised value.
  • An increase was made to the VA refinance maximum guarantee, and it is now identical to the maximum guaranty of standard purchase loans. Bear in mind that the amount of the guaranty varies according to the scenario in question.
  • An extension was made to the max amount that the VA will guarantee; it is now set to expire on December 31, 2011. Once again, the amount of the guaranty varies.


DISCLAIMER: Neither Indiana VA Mortgages ( nor NEO Home Loans is affiliated with any government agencies, including the VA.