Tracy Mooney, a Freddie Mac senior vice president, wants you to know the facts about HARP, the Home Affordable Refinance Program. She says that nine HARP misconceptions might be keeping many people from refinancing through the program, and that could be costing them money.
1. Refinancing adds years to the time it takes to pay off your home loan.
Many claim that refinancing with HARP (or any other program for that matter) resets the clock and the borrower would again be looking at 30 years of mortgage payments. We have written this many times on this blog and on our regular article pages, because it IS true -- unless you take certain precautions.
Tracy points out that almost any refinancing allows the borrower to pick a term from 10 to 30 years for the new loan. Alternatively, the borrower could use a mortgage calculator to see what payment at the lower refinance interest rate would get the home paid off without extending the term, and simply make that payment instead of the one the lender requires. Bottom line: all things being equal, dropping the rate is advantageous in most cases.
2. HARP offers from many lenders are scams.
Mooney says that borrowers can report any suspicious offers at 888-995-HOPE. The vast majority of mortgage lenders are legitimate -- make sure yours in licensed to do business in your state. You can also check a lender's reviews on sites like LendingTree.com to verify their reputation and the quality of their service.
3. HARP can't help homeowners who are underwater on their mortgage.
That, in fact, is what HARP was designed to do and has no restrictions on loan-to-value ratios for fixed-rate mortgages. However, individual lenders may apply "overlays" to the requirements set out by the government -- which means they can be more restrictive and not all lenders allow unlimited negative equity on their HARP refinances. Your best bet is to contact a lot of lenders if you are severely underwater -- easy to do on sites like LendingTree.com.
4. HARP refinancing is hopeless for the unemployed.
HARP does offer options that might work such as underwriting based on assets rather than income -- "asset depletion" means using your assets as income to cover a three year period -- for example, if you have $36,000 in the bank, lenders are allowed to add $1,000 a month to your income for HARP qualifying purposes.
5. If your lender doesn't participate in HARP, you're out of luck.
That used to be the case when HARP was first deployed. Today, it is possible to refinance through HARP even if the borrower's current lender doesn't participate in the program. LendingTree lenders willing to underwrite these refinances will contact you if you complete the request form.
6. If you have an adjustable rate mortgage (ARM), you're out of luck.
HARP was in fact created to help homeowners homeowners with ARMs obtain mortgages that are more stable and sustainable. With rates as low as they (still) are today, it makes sense to lock into a fixed-rate home loan.
7. Condos are not eligible for HARP refinancing.
Not only are condos eligible but so are investment properties and second homes.
8. You need a pile of cash to pay closing costs.
When you have home equity, you can increase your loan amount to cover the closing costs. That's not possible when you have negative equity. However, what you can do is accept a slightly higher interest rate in exchange for the HARP lender covering your closing costs -- many lenders offer "no-cost" HARP loans. In general, for a 30-year fixed rate loan, a .125% - .250% increase in interest rate will get you a rebate of one percent of your loan amount. So if your lender quotes you a 4.5 percent interest rate with zero lender fees, and your title, appraisal and other third party charges equal $2,000, the interest rate to cover those costs would be somewhere between 4.625% and 4.75%.
9. HARP is only for those who are behind in their payments and in danger of foreclosure.
In fact HARP, is intended specifically for homeowners who are current on their mortgages but are underwater and unable to refinance through a traditional refinance programs. You cannot have had more than one late mortgage payment in the last 12 months -- "late" means more than 30 days late, which would cause it to show up as "late" on a credit report. In addition, you cannot have been late at all in the most recent six months, and you must be current on all payments when you apply.
Moony said potentially millions of homeowners could save money each month by refinancing through HARP. The program has more than 2.9 million homeowners who completed their refinances and are saving money.