After the housing market took a nose dive, the government started to take a look at what it could do to bring the economy out of the slump while helping people stay in their homes. The solution they created was the Making Home Affordable program. As part of this program they developed the HARP refinance, which is a refinance specifically geared toward homeowners who are underwater on their mortgage. This was one of the biggest concerns homeowners faced after the real estate slump. They purchased their homes at the peak and after it dropped, they no longer had any equity but instead owned a home with a mortgage that was more than the property was worth. HARP was created to combat that.
Am I Eligible for a HARP Refinance?
Securing a HARP refinance wasn’t supposed to be a difficult task so the requirements for qualification are not very stringent. First and foremost, your loan has to be guaranteed by a Freddie Mac/Fannie Mae lender. These conventional lenders follow the underwriting guidelines of Freddie and Fannie, which means that their rules are a bit different than those lenders that follow FHA guidelines. Because of this, any loan owned by a federally insured lender will not be able to qualify for the HARP program.
A second requirement for qualification is that you live in the home you are attempting to refinance. The HARP program is for individuals who are underwater on their mortgages. It is not for individuals with rental or second homes so they have been excluded from the list of qualifying homeowners.
The biggest and perhaps most important requirement is that you be current on your existing mortgages. The HARP refinance was designed for homeowners who are dealing with an underwater situation but who haven’t yet gone into default or foreclosure. If you are current on your mortgage payments for the last twelve months, with all of those payments being made on time, you are in a good place to qualify. In addition to this, your loan-to-value ratio must be more than eighty percent, which simply means that you have to have a mortgage that is more than eighty percent of the value of the home.
Two additional requirements state that the home cannot have been refinanced before through HARP (although there is a small exception to this rule), and the mortgage you are attempting to refinance has to have been acquired by Freddie and/or Fannie prior to May of 2009. This is for homeowners who suffered as a result of the housing bubble burst. Unfortunately, for homeowners who came into this situation later, the HARP program isn’t one they can take advantage of.
Getting Good Refinance Rates
The HARP program is beneficial for homeowners because it enables them to lock in a lower interest rate than the rate that they currently have, oftentimes saving them hundreds per month on their mortgage. While this may sound tempting, there is something you should consider before you take advantage of HARP. Securing decent refinance rates is only your first step when it comes to refinance. You don’t want to jump into the loan until you’ve determined that the rates will benefit you in the long run as well, not just the short term.
When you refinance a loan you have what is called the break-even point. This is simply the amount of time it takes you to recoup the losses from the refinance, which you paid up front in closing costs and fees. Typically these are in the thousands. If you take the amount of money you paid out in closing costs and fees and divide it by the amount you save on your mortgage every month, you’ll end up with the number of months it will take you to break-even on the refinance. This can be a little over a year to more than five years, depending on your numbers. This is important to note because if you’re saving less than a hundred a month, the refinance may not be worth it. However, if you’re looking at savings of a couple of hundred per month, the refinance may pay for itself within a year or two.
There are always pros and cons to refinancing, but the bottom line is if it helps you save money or helps you out of a financial bind, then it is worth considering. With the Making Home Affordable program and HARP, you may be able to get back on top of your home mortgage, making your investment work for you once again.
HARP Refinance and home loans for deistressed homeowners.