When you want to refinance your home there are several options you can consider. Two of those are conventional choices and the HARP program. It’s very important to understand the difference between HARP and conventional refinancing, so you can make the right choice for your needs. Which option you need will generally depend on how your financial situation looks, since some financing choices are for borrowers who are struggling while others are just for those who are looking to make changes to their rate and terms. Borrowers who bought homes at the top of the market probably paid top dollar for those houses. The also paid top interest rates, so they may want to refinance to get a lower rate and have mortgage payments that are smaller.
1) What does conventional refinancing mean?
Conventional refinancing is standard refinancing. It’s for people who want to pay less on their mortgage by getting a lower interest rate. Those borrowers may also want to improve their other terms, along with the rate of interest they are paying. In some cases, borrowers who have a lot of equity in their home will refinance and pull out that equity. That makes their mortgage larger, but it also gives them money they can use for something else. If they get a much lower interest rate than they had before, even pulling out that extra money may not raise their payment that much. You can refinance your home with a conventional loan through the lender you already have. There will be some closing costs to do that, but the amount you save may be well worth it.
2) How is HARP different?
The HARP program for refinancing your home can be an excellent choice for people who are struggling to make their mortgage payments. It’s designed to make homes affordable again, and it does that by helping borrowers who bought at the top of the market get financed into a better loan. It can change the interest rate and terms by a lot, and in some cases can even lower the amount that you owe. That way you have a mortgage that’s much more suited to the value of the house you purchased. The HARP program is through the government, and isn’t for everyone. People who aren’t having trouble paying their mortgage or other bills probably can’t use the program, since they aren’t experiencing a provable hardship by having the mortgage amount and interest rate they do. They may be able to refinance, but will need to do so conventionally.
3) How do you know which option is best?
The best option for you is the one you can qualify for, and the one that provides you with the best possible rate and terms. For people who are struggling, that’s the HARP program. Others who aren’t struggling with their payments may choose to refinance conventionally. There is a gray area for people who aren’t struggling but who technically owe much more on their home than it is worth through buying at the top of the market. These people can’t refinance conventionally because they are “upside down” on their homes, but they may have trouble going through HARP because they aren’t having financial trouble. That’s an important consideration, and one that you’ll want to talk over with your lender if you’re thinking about refinancing your home in order to lower your interest rate or otherwise make your terms more agreeable.
4) Can anyone get a refinance through HARP?
Not everyone can get a refinance through the HARP program. In the past there were many complaints from people who believed they were qualified through the program, but who were denied a refinance. These people sought loan modifications and every option they could think of, and sometimes still couldn’t get help. A lot of those problems have died down, and more people are able to qualify for the HARP program. If you feel you should qualify but you’ve been told that you don’t, working with advocates or even an attorney can give you the opportunity to get the assistance you need. That way you’ll have a lower mortgage with a better interest rate and terms, so you can move toward straightening out your financial life and get back on track.
5) How does your credit look?
If you’re deciding on a home refinance, you’ll want to take a careful look at your credit. The better credit you have, the better your chances for qualifying for a refinance through conventional means. The HARP program takes into account the fact that your credit may not be that good, since you will have likely fallen behind on your payments from having such a high interest rate and other problems with your mortgage. Still, the better your credit is the higher your chance of getting refinanced. Even if you can’t fix your credit, it’s a good idea to know what it looks like before you try for a refinance. That can help you be prepared for talking with a lender.
6) Do you have equity in your home?
When you refinance, having equity in your home can help you. Even if you don’t want to pull out that equity and use it for something else, you may look like a better credit risk if you have more equity in your home. That’s worth considering, but with home prices dropping in some areas and rising in others you’ll want to find out what your home is worth and how much equity you actually have in it before you talk to a lender about any type of refinancing.
2 Point Highlight
Conventional refinancing is standard refinancing. It’s for people who want to pay less on their mortgage by getting a lower interest rate.
The best option for you is the one you can qualify for, and the one that provides you with the best possible rate and terms.
