HARP Refinance: Beautiful Music for Underwater Homeowners

  The recent recession and foreclosure crisis has many homeowners in the US singing the blues -- unable to sell up or refinance to a better mortgage. The government-offered HARP refinance can help underwater homeowners sing a new tune. HARP stands for Home Affordable Refinance Program, and it's designed to help homeowners who've lost equity in their homes refinance their mortgages. HARP eligibility qualifications include:

  • The existing mortgage is owned by Fannie Mae or Freddie Mac. Homeowners can use these links to determine if their mortgage is owned by either organization, and if so, if it was sold to Fannie Mae or Freddie Mac prior to the eligibility cutoff date of May 31, 2009.
  • The existing mortgage cannot have been previously refinanced through HARP unless it is owned by Fannie Mae and was refinanced through HARP between March and May of 2009.
  • The current loan-to-value (LTV) ratio on an existing mortgage must be 80 percent or greater. The LTV is expressed as a percentage of a home's value. Estimate a home's LTV ratio by dividing the current mortgage balance by the present value of the home. For example, if the present mortgage balance is $250,000 and the subject home is worth $300, 000, the estimated LTV ratio is 83.333 percent.
  • Payments on the existing mortgage must be current with a good payment history (no more than one 30-day late payment in the last 12 months and none in the last six months) in the year prior to applying for HARP.

Meeting these qualifications does not ensure lender approval for HARP refinancing.

HARP Refinance: It Pays to Shop for the Best Deal

HARP refinance approval guidelines are designed to assist homeowners who cannot qualify for traditional refinancing due to loss of home value. According to Freddie Mac, refinance guidelines for HARP include:

Eligible properties include 1-to-4 unit owner-occupied homes, a one unit second home or a 1-to-4 unit investment property.

No maximum LTV ratio: While home prices have generally increased since the recession, homeowners continue to struggle with homes worth less than their current mortgage amounts. HARP refinance loans are designed to help these homeowners gain the benefits of lower interest rates and lower monthly payments.

Refinancing with HARP allows borrowers to refinance to adjustable rate mortgages or fixed rate mortgages. They may refinance to a fixed-rate HARP loan regardless of home value. However, because ARM refinances are considered riskier, borrowers cannot refinance to an adjustable loan if their loan-to-value ratio exceeds 105 percent.

No mortgage insurance required if the existing mortgage did not require it. For loans with existing MI, there is no requirement for increased coverage.

HARP: Things to Know

Homeowners are not required to refinance using their current loan servicer, and not all mortgage lenders offer HARP refinancing. In addition, lender guidelines vary widely -- for example, some mortgage providers allow fixed-rate refinances with unlimited loan-to-value ratios, while others might restrict loans to 105 percent or 125 percent. Pricing and interest rates also vary significantly, so smart homeowners contact several lenders and compare rates, terms and underwriting standards before making a commitment.

Freddie Mac advises homeowners that mortgage lenders are allowed to add additional qualification to minimum requirements for HARP refinancing. This is an important reason for homeowners to shop and compare HARP quotes and discuss mortgage credit requirements with multiple lenders. Homeowners whose HARP applications are declined may be approved by another mortgage lender.

FHFA, the agency that oversees Fannie Mae and Freddie Mac, reports that HARP is set to end on September 30, 2017. This means that homeowners have time to research options for a HARP refinance, but getting started sooner than later may provide more savings.

Applicants can avoid processing delays by submitting all documentation requested by HARP lenders. Missing documents can cause HARP applications to be delayed or declined.

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