Home LoansMortgage RefinanceHARP Replacement Programs in 2019 for Underwater Borrowers

HARP Housing: Loan Requirements and Alternatives

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Looking to lower the interest rate on your home mortgage, or lower your monthly housing payment? A home refinance could allow you to take advantage of both options at the same time.

However, if you’re “underwater” on your house (meaning you owe more than the house is worth), most banks will not allow you to refinance. In general, you need your home equity (the value of your house less the amount you owe) to be at least 5% of your home’s value. Some lenders may require even more equity to refinance.

So what can you do if you’re trapped underwater, but you want to refinance? The Home Affordable Refinance Program (HARP) is a federal refinance program designed to help homeowners who need to refinance, but owe more than their house is worth.

What is HARP?

HARP is a federal program designed to help underwater homeowners refinance to lower rates. It was first established in April 2009 to help borrowers who were up to 5% underwater. Later that year, the Federal Housing Finance Agency (FHFA) extended the program to people who were up to 25% underwater. In 2011, the program eliminated restrictions on how underwater you could be while qualifying to refinance.

Because HARP was created in response to the housing crisis that started in 2007, it won’t be around forever. FHFA extended the program through December 31, 2018. According to its estimates, as of late 2017, up to 143,000 homeowners could still benefit from refinancing through HARP.

People who refinance through HARP will pay closing costs and other fees for their new mortgage, but the refinance still has benefits. Some people may find lower interest rates or lower monthly payments by refinancing.  Homeowners can also carry their existing mortgage insurance to the new loan. If the current mortgage doesn’t have mortgage insurance, no new mortgage insurance will be required.

When refinancing through HARP, you will have to undergo minimal credit and income underwriting, and an appraisal of the value of your home. The credit and income underwriting aren’t as arduous as the underwriting of an initial mortgage. For example, you can use verbal verification for any of your employment income.  Fannie Mae and Freddie Mac waive minimum credit scores for HARP refinances, but you must be current on your mortgage.

Do you qualify for HARP in 2018?

Not all homeowners will be eligible to refinance through HARP. To qualify, you must have originated your mortgage on or before May 31, 2009. If you purchased your home more recently than that, you won’t qualify.

You must also meet these requirements:

Current on your mortgage. No late payments (30 days or more late) in the last six months, and only one in the past 12 months.

Loan owned by Freddie Mac or Fannie Mae. To qualify to refinance using HARP, government securitizing enterprises Fannie Mae or Freddie Mac must own your mortgage. These days, Fannie Mae or Freddie Mac own half of all mortgages issued the United States. But prior to 2008, that wasn’t always so common.

Before applying for HARP, check if your loan is owned by Fannie Mae. You can find out by using this tool or the Freddie Mac look-up tool. If you don’t find your mortgage through one of these look-up tools, you’re probably not eligible for HARP. Of course, you can always call your lender to double-check.

No more than 20% equity. To qualify for HARP, you must have less than 20% equity in your home. This means that the loans on your house (including all mortgages, HELOCs, etc.) consume more than 80% of the value of your house. If your loan-to-value ratio is more than 80%, you may qualify for HARP. Use this tool to calculate your LTV ratio, and to get guidance on whether you may be HARP eligible.

Primary residence, secondary residence or investment property. Your primary residence, a one unit second home or a one- to four-unit investment property may be eligible for HARP.

Alternatives to HARP

If you don’t qualify for HARP, you may still find better interest rates or a lower monthly payment by choosing a different refinancing option. These are a few options to consider.

FHA streamline refinance. People who have an FHA loan, will not qualify for HARP, but they may qualify for an FHA streamline refinance. These loans are considered streamlined because they require limited income and credit underwriting. You do not need an appraisal on your home to qualify for a streamline refinance. However, you must be current on your mortgage to qualify for a streamline refinance.

Although you can choose a “no out-of-pocket costs” streamline refinance option, streamline refinancing isn’t free. You’ll still pay hundreds or thousands of dollars in closing costs and fees, but you won’t pay for those out of pocket. Instead, you’ll pay a higher interest rate compared with paying closing costs out of pocket. If you can benefit from a new term length, a lower interest rate or a fixed-rate option, consider the streamline refinance. Be sure to compare rates among FHA lenders to be sure that you’re getting your best rate.

USDA streamline refinance. Like the FHA streamline refinance, the USDA streamline refinance program allows people with USDA loans to refinance their homes with limited credit underwriting and no appraisals. However, you must have an income below the income standards set by the USDA to refinance through the streamline option.

The closing costs associated with the streamlined refinance can be rolled into the cost of the new loan, but the new loan must reduce your monthly payments by at least $50.

IRRRL for VA loans. Interest rate reduction refinance loans (IRRRL) allow homeowners with VA mortgages to refinance their loan to a lower interest rate. With an IRRRL, you won’t need a new home appraisal, and the bank won’t underwrite your credit again.

You may be eligible for an IRRRL even if you’re not currently living in the home, but you have to certify that you previously lived there. When taking out an IRRRL, you’ll have to pay a .5% funding fee and closing costs, but you’ll come away with a lower interest rate (and lower payments if you extend the life of your loan). The funding fee and closing costs can be rolled into the new loan leading to no out-of-pocket costs.

Conventional refinance. By the start of 2018, 99% of homeowners who refinanced a conventional mortgage did so by taking out a conventional refinance. Refinancing involves taking out a new mortgage to pay off an existing loan. You’ll need at least 5% equity to complete a conventional refinance, and some lenders require as much as 20% equity. To get your best rate when you refinance, be sure to compare rates from multiple lenders.

High LTV Refinance. In 2016, Fannie Mae and Freddie Mac announced new high LTV refinance programs. Historically, these companies only allowed refinances for homeowners with at least 5% equity (or more depending on the type of property). Now, these companies are offering high LTV refinances for people with as little as 3% equity.

To qualify for a high LTV refinance, you must have taken out your current mortgage on or after Oct. 1, 2017. While most people don’t need a high LTV refinance program right now, it could be helpful if your market is stuck in a prolonged period of stagnant or declining house prices.

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Getting started with HARP

If you qualify for a HARP refinance, now is the time to act. These are the steps you can take to start your application.

Check your loan eligibility. Check whether your loan is eligible for a HARP refinance by filling out the information on both the Fannie Mae look-up tool and the Freddie Mac look-up tool. If your mortgage is eligible for a HARP refinance, these tools will let you know. You must use both tools because Fannie Mae and Freddie Mac are different companies. Only one will have your mortgage information. Take note of whether your mortgage is owned by Fannie Mae or Freddie Mac. This may limit the lenders you can work with on a refinance.

People who are worried that they may have too much equity in their homes to qualify for a HARP refinance, can use this tool from Fannie Mae to check their eligibility. Remember, you want to see an LTV of more than 80% for a HARP refinance. Of course, your bank-approved appraisal will be more accurate than an appraisal from an online tool.

Compare rates from different lenders. If you qualify for a HARP refinance, you can work with your current lender to refinance. Working with your current lender is the fastest and easiest option for a HARP refinance. However, you may get a better rate if you compare rates from at least three different lenders. To get a rate estimate, you will need to request a quote (an estimate of loan costs, and interest rates) from an eligible lender. Eligible lenders for Fannie Mae are available here. Eligible lenders for Freddie Mac are available here.

Decide whether the savings are worth it. Once you have quotes from multiple lenders, you’ll want to be sure that the refinance is worth the cost. In particular, you’ll want the savings from a lower interest rate to cover closing costs within a few years at most. This calculator can help you decide whether the refinance makes sense.

Apply and close. If a HARP refinance makes sense for you, then choose the lender with the lowest quote, and apply for a loan. The lender will walk you through the approval and closing process.

The future of HARP

HARP has been an option for underwater homeowners for nearly a decade, but it’s poised to disappear at the end of 2018. Based on government estimates, more than 100,000 people can still benefit from HARP, and very few are taking advantage of it right now. Even if you were turned down for a HARP refinance before 2011, you may qualify for one now. If you think you could benefit from HARP, look into it before it goes away for good.


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