You will need to refinance both the 1st and 2nd mortgages into one new FHA loan.
As long as the appraisal comes in at a point where the total loan to value (LTV) does not exceed 125% of the appraised value when the appraisal is done by the FHA appraiser, you should be fine.
You will obviously have to qualify under the general credit and income guidelines of the program, too.
I am afraid the apprailsal will be the biggest factor in this scenario. You can do an FHA if it appraises high enough. Costs associated with FHA inlcude upfront mortgage insurance which amounts to 1.75% of the loan amount. This can be tacked onto the end of the loan inseated of coming up with cash at closing. PMI will also be accessed on the loan as in a conventional loan product (0.5% of the loan amount spread over 12 months). The PMI has to be paid for a minimum of 5 years even if the Loan To Value (LTV) drops below 80%.
I would be happy to take a look and try to help you. Your risk if the scenario does not fit would be about $350 for the cost of the appraisal (FHA appraisal). I am dealing with quite a few people in your type of situation so iIdo have a good deal of experience at this. Click on my profile for contact informtaion if you would like speak with me. Good Luck!... more