Almost 2.2 million homeowners have now refinanced by using the government's HARP program, in most cases despite the fact that their homes were financially underwater. U.S. homeowners have until September 30, 2017 to use the government's refinance program, so if your mortgage balance exceeds 80 percent of your home's value ( you don't have to be underwater to use HARP), and you meet all other eligibility requirements, HARP is something to explore.
Insufficient home equity makes it problematic for homeowners to refinance, even though monthly costs would decline significantly with the lower mortgage rates available today. Private lenders will not make such loans without someone else assuming the risk for them. That's where HARP comes in -- it allows qualified borrowers to refinance even with no equity or negative equity.
The government started the Home Affordable Refinance Program (HARP) in 2009. Originally, eligible homeowners could refinance if the value of the mortgage was as much as 105% of the value of the property. For instance, if the property was worth $200,000 the borrower could not owe more than $210,000.
The original HARP program went much further than private-sector lenders were willing to go, but not far enough to help out much in major foreclosure centers. As a result, a larger equity imbalance -- as much as 125 percent -- was allowed starting in June 2009. Then, in October 2011, the 125 percent ceiling was removed, meaning that HARP refinancing options are now available to more homeowners than in the past.
Should You Consider HARP Refinancing?
Imagine that you have a qualifying loan with a current balance of $200,000. Imagine also that the value of the property is $150,000. If you could reduce the interest rate from six percent to four percent, you would save roughly $3,000 a year.
If your property is financially underwater, HARP may be the best available option. To qualify, you'll need a loan which was originated before May 31, 2009 and is owned by Fannie Mae or Freddie Mac. You can only use HARP once, so if you refinanced under the program previously, you can't re-use it.
You'll also need something else: HARP rules require that to qualify for the program "the borrower m ust be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months."
In addition to not missing a payment during the past 12 months, borrowers cannot have had a late payment in the six months before application.
Not Underwater? HARP Might Be Your Best Choice Anyway
For example, if you originally financed your home purchase with an 80 percent home loan, mortgage insurance was not required. However, if your home lost value, a new refinance might end up being 90 percent of your home's value, which would require mortgage insurance. The HARP program, however, does not require the addition of mortgage insurance if your original loan did not have it. HARP allows any loan-to-value ratios exceeding 80 percent.
The takeaway here is that for eligible borrowers, the HARP program may be the best choice, whether you're underwater or not.