The Home Affordable Refinance Program (HARP) was created by the Federal Housing Finance Agency in March 2009 in response to the housing and mortgage crisis. The crisis began back in 2006 and wiped out home equity for millions of home owners while putting many more into negative equity situations. The purpose of the program is to allow those with less than 20% equity in their homes to refinance without also paying for mortgage insurance.
As many as a quarter of all homes in the U.S. are believed to be in negative equity situations, also know as being “underwater”. If this describes your situation and you’d like to refinance your home here’s how the HARP program may be able to help.
General HARP Qualifications
HARP was designed for owner-occupied, primary residences only. If the property you’d like to refinance is an investment property or second home this program won’t help.
There are five basic eligibility criteria for the program:
- The mortgage must be a Fannie Mae or Freddie Mac loan. Most conventional mortgages are and you can check directly with Fannie Mae or Freddie Mac to find out if yours is.
- The loan must have been delivered to FNMA/FHLMC on or before May 31, 2009.
- The loan cannot have been previously refinanced under HARP.
- The current loan-to-value must be greater than 80% (equity less than 20%).
- You must not be behind on your mortgage with no late payments within the past six months, and no more than one late payment in the past 12 months.
The program ends on December 31, 2013.
The Benefits of HARP
The most obvious advantage is that you can refinance your mortgage even if you have little or no equity in your home, or have negative equity. You can lower your monthly mortgage payments with a refinance to a lower rate than you currently have.
Another major benefit is that no private mortgage insurance (PMI) is required on your new loan if none was required when you originally took your current mortgage. The mortgage insurance that would normally be required on a refinance with no equity, or negative equity, would eliminate the interest rate benefit—or worse.
In addition, credit and income requirements for HARP have been relaxed.
Equity and Appraisal
There is no equity requirement for HARP. In theory at least, if you owe $200,000 on your mortgage, but your property is only worth $100,000, you’re still eligible. The one limit on negative equity lenience is that the loan must be for a term that does not exceed 30 years.
If the loan does exceed 30 years, or if it’s an adjustable with a fixed initial period greater than five years, then your new loan would not be able to exceed 105% of the current value of your home.
Though your lender can require one, you may not need a home appraisal if an automated valuation model system is available, as it is in most metropolitan areas.
Credit and Income Qualifications
You must have a minimum credit score of 620, and as stated above, your mortgage must be current with no late payments within the past six months, and no more than one late payment in the past 12 months. Also, there is no waiting period for bankruptcy or foreclosures.
Lenders are required to verify your income and assets, but you don’t have to qualify based on your income unless the new payment increases by more than 20% over the old one (this could happen if you refinance from an adjustable rate loan with a 40-year-term to a 30-year fixed rate loan). If you need to income qualify, your debt-to-income ratio limit is 45%.
HARP Program Complications
Even if you qualify under the HARP program, your lender may not offer it. Not all lenders participate in the program, so you may have to find a new lender who will. You can check Freddie Mac’s lender list to see which lenders in your area offer it.
Check with several lenders and shop for the best rates and fees—while the program is the same everywhere, pricing is not. You want to look not only at interest rates, but also at closing costs.
Not all lenders work with all private mortgage insurance providers (or any at all), so if you have PMI on your current mortgage, you may have to find a lender that will work with your PMI provider or a suitable replacement.
HARP will help a large number of homeowners, who are underwater on their mortgages, to be able to obtain refinances to lower their monthly payments. It won’t help everyone—those who originated their current mortgages after May 31, 2009, or whose loans aren’t owned by Fannie Mae or Freddie Mac, or who have credit scores below 620. But it’s always worth investigating to see if it will work for you.
Have you had experience with a refinance under the HARP program? How did it work for you? Leave a comment below!