The Home Affordable Refinance Program
Many Americans are struggling right now to make payments on their mortgage loan. With that said, there are two programs available: Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP). In this course, we will take a closer look at HARP, considering the following questions:
- What is the Home Affordable Refinance Program?
- How do you qualify for a HARP?
- How does refinancing affect my mortgage loan?
- How can you refinance through HARP?
What is the Most Affordable Refinance Program?
The Home Affordable Refinance Program (HARP) allows individuals who are current on their mortgages to take advantage of lower interest rates, even though their homes may have decreased in value.
The following must "all" be met in order to participate in the Home Affordable Refinance Program:
The loan on your property must be owned or guaranteed by Fannie Mae or Freddie Mac. You should call your mortgage lender or servicer (where you make your mortgage loan payments) and ask about the program. Additionally, both Freddie Mac and Fannie Mae have toll-free telephone numbers for information and application purposes, as well as web submission processes.
You must be current on your loan payments, which generally means that you have not been more than 30 days late on your mortgage payments for the last 12 months. If you have not had your loan for more than 12 months, you must not have any late payments (even 30 days late).
The amount you owe on your first lien mortgage cannot exceed 125% of the current market value of your property. For example, if your property is worth $200,000, but you owe $250,000 or less on your first lien mortgage, you may qualify. The current value of your property will be determined during the application process. Additionally, if you have a second lien on your mortgage, your eligibility will depend upon whether the second lien holder agrees to remain in the second position as well as your ability to meet the new payment schedule in the first lien refinance.
You have a reasonable ability to pay the new mortgage payment. You will be given a “Good Faith Estimate” as well as a “Truth in Lending Statement” that will outline your new terms and conditions with HARP. If the proposed new payment is not better than your current one, a refinance may not be the best option for you.
The refinance improves the long-term affordability or stability of your loan. Again, as mentioned in the previous qualification, if your proposed new payment is not better than your current one, you may not want to refinance. However, you may consider refinancing still if you have the ability to convert an ARM (or higher risk loan) to a fixed-rate product, providing you with more stability over the life of your loan.
Insurance Coverage and HARP
It is important to point out that if your existing loan has private mortgage insurance (PMI), you will need the same amount of insurance coverage for a refinance under HARP. If your loan does not have PMI, you will not need to worry about it to qualify for the refinance program.
Refinancing and Your Loan
There are three common questions asked about refinancing through HARP:
- Will refinancing lower my monthly payment? Yes. Refinancing through HARP should allow you to lower your monthly payments. The interest rate will be based on market rates in effect at the time of the refinance as well as any points or fees quoted by your lender. Rates may vary across lenders and may adjust over time. It is important to note that HARP refinance loans cannot have prepayment penalties or balloon payments.
- Will refinancing lower the principal amount of my loan? No. A HARP refinance loan is not designed to lower your principal; it is designed to make your payment more affordable or your loan more stable. It is important to note, though, that refinancing may allow you to save a lot of money due to reducing the amount of interest paid over the life of the loan.
- Can I get cash out with a HARP refinance loan? No. However, if your loan is owned or guaranteed by Fannie Mae, you may be able to finance your closing costs as well as obtain up to $250 if there is sufficient equity in your home.
If your home is owned or guaranteed by Freddie Mac, you may be eligible to finance transaction costs equal to the lesser of 4% of the current unpaid principal balance of the loan being refinanced, or $5,000. You may also be able obtain up to $250 if there is sufficient equity in your home.
The first step to take to refinance through HARP is to talk to your lender or servicer (where you make your mortgage loan payment). It will usually help lenders if you have the following information available prior to making any contact with them:
- The gross monthly income of all borrowers on your loan.
- Your most recent income tax return.
- Information about any second lien mortgage on your home.
- Account balances and minimum monthly payments due on all your credit cards.
- Account balances and minimum monthly payments due on all other debts, including student loans, vehicle loans, etc.
Payments are Your Responsibility
During the application process, it is important that you continue to make payments on your loan. If you are planning to participate, you must exercise patience, as this process is not quick and may require some work on your part. But, if you can save money and obtain lower monthly payments, it is worth the wait.