What is a HARP mortgage? In response to the number of foreclosures after the housing bubble burst in 2008, the Federal Housing Finance Agency started the Home Affordable Refinance Program (HARP). This program was designed to help homeowners who are current on their mortgage payments but are unable to refinance since the amount owed on the loan is more than the value of their home, known as “underwater.” The HARP program is set to expire at the end of 2016 unless Congress intervenes, but that still leaves plenty of time for eligible homeowners to refinance their homes.
What are the Eligibility Requirements for the HARP program?
In order to qualify for a HARP refinance loan, you must be current with your existing mortgage with no late payments during the past six-month period and no more than one late payment during the past year. You also must be able to demonstrate that you can afford the new loan payments and that the refinance will improve the long-term affordability of your home.
HARP also has strict requirements regarding Fannie Mae and Freddie Mac. At the time of the HARP refinance, your existing mortgage must be guaranteed or owned by either organization or it was sold to them prior to May 31, 2009. In order to be eligible, your mortgage must not have been refinanced previously by HARP unless it meets some very strict requirements.
Does the HARP Program Refinance Any Type of Mortgage?
HARP refinances conventional loans for most types of residential housing as long as they meet the eligibility requirements. If you have an underwater FHA loan, you can apply for the FHA Streamline Refinance program. For underwater VA loans, the VA’s IRRRL mortgage program might be able to help, and the USDA Streamline Refinance program is in place for USDA loans.
Is There a Maximum Loan-to-Value Ratio for a HARP Refinance?
Borrowers who are refinancing with HARP for a fixed-rate mortgage of 30 years or less will not be faced with any cap on their loan-to-value ratio (LTV), although HARP generally won’t refinance loans that have an LTV of 80 percent or less. If you plan to take out a HARP adjustable-rate mortgage (ARM), then your LTV is capped at 105 percent.
Your LTV simply compares what you owe on your home versus its value. If you purchase a $200,000 home and make a down payment of $40,000, your LTV is 80 percent (mortgage principal balance divided by the home’s value). If the housing market in your area deteriorates and your home is now worth $150,000, your LTV increases to 107 percent. Since you owe more than the home is currently worth, you would lose money if you decided to sell it and most private lenders wouldn’t consider you for a refinance.
Will I Have to Pay Private Mortgage Insurance?
Most private lenders require you to pay for private mortgage insurance (PMI) until you have reached an LTV of 80 percent or less, and even the FHA requires mortgage insurance premiums (MIP) on its loans. If your current loan does not have mortgage insurance attached to it, you won’t have to pay for it when you refinance with a HARP loan. Borrowers who are currently paying for mortgage insurance will continue it in their new HARP loan.
Can I Choose the Type of Mortgage?
Lenders offer several different types of loans through the HARP program. If your goal is to achieve the lowest monthly payment possible right now and your LTV does not exceed 105 percent, you can take out an adjustable-rate mortgage over five, seven or 10 years. Many borrowers who are currently underwater are more concerned with stable payments, and they often choose a HARP fixed-rate mortgage with a term between eight and 30 years.
How Much Will My Closing Costs Be?
Every situation is different so there’s no way to quote exactly what your closing costs would be with a HARP loan. However, they aren’t typically more than you would pay for any conventional refinance, and they might even be less as you may not need to get a new home appraisal with the HARP program. In many cases, HARP allows borrowers to roll their closing costs into the loan. This will increase your monthly payments slightly, but you won’t need to come up with a large lump sum. If you net escrow from your current mortgage to your new loan, you can decrease the amount you’ll need to close even more.
Will I Save Money by Refinancing with HARP?
Fannie Mae has reported that the average homeowner who refinances with HARP saves more than $250 month on their monthly mortgage payments. Just remember that some borrowers save more, some less and some don’t save at all. If you took out your mortgage when rates were six percent or higher, you’ll probably get the most out of a HARP loan.
If you’re refinancing a $125,000 loan that currently has a 6.5 percent interest rate and you’re offered a fixed-rate HARP loan of 30 years at 4.5 percent interest, you’ll decrease your mortgage payments by more than $150 per month. Going into that same HARP loan with a $125,000 loan that currently has a 5.5 percent interest rate, you’ll only net a savings of roughly $75 per month. With closing costs in this situation of slightly over $3,000, it would take you three to four years to break even from those fees.
What is a HARP mortgage? It’s a program that may help you to stabilize your financial situation if your home is currently underwater and you’ve run out of other options. Make sure that you meet the eligibility criteria, and then shop around to several different lenders to find the best deal on a HARP refinance.
2 Point Highlight
HARP refinances conventional loans for most types of residential housing as long as they meet the eligibility requirements.
Fannie Mae has reported that the average homeowner who refinances with HARP saves more than $250 month on their monthly mortgage payments.
