Thanks for your question. It’s certainly a relevant one given the state of the economy and housing market.
Though most traditional mortgage/loan companies will not allow you to refinance when you’re upside down, the experts at eHow.com say you may be eligible through the Home Affordable Refinance Program, part of the Obama administration's Financial Stability Plan.
Here are the six steps for determining if this is a solution you can take advantage of:
1. Ask for what’s called a “home affordable refinance application” from your lender, or apply for the application via a company approved to do business with lenders affiliated with Fannie Mae or Freddie Mac.
2. Your loan must be owned or guaranteed by Fannie Mae or Freddie Mac to qualify, so determine if this is so.
3. Make sure you are current on all your payments (no more than 30 days late within the last year).
4. You must owe no more than 125 percent of your property’s current market value.
5. If you have more than one loan, verify that the second mortgage lender will “remain in a junior (second) position” to the original lender, and that this second lender agrees to the new payment terms prescribed by the first mortgage.
6. Be certain that you can make the new payments for the long haul, and that the refinancing is an improvement to your loan’s stability.