After the real estate market dove into a slump, the Obama administration went to work creating programs that would help pull the market out, while at the same time helping more people keep their homes rather than falling into foreclosure. Launched in 2009, the Making Home Affordable plan immediately went into action giving homeowners the option to either modify their loans or refinance to a loan that better fit their financial needs. The Obama refinance program has two parts, both of which were created to give homeowners these options so they wouldn’t lose their homes due to circumstances beyond their control.
HARP – The Obama Refinance Program
There are two parts to the Making Home Affordable plan that homeowners can benefit from. The first is the HARP program, which stands for Home Affordable Refinance Program. HARP is for homeowners who experienced a drop in their homes value after the real estate went into its slump. Prior to the slump most of these homeowners were in a place financially where it wasn’t a challenge to meet that monthly payment, but for many of them that changed almost overnight.
Through the Home Affordable Refinance Program a homeowner can qualify for a refinance even if he is underwater on his loan, meaning he owes more than the home is actually worth. By refinancing the homeowner is able to adjust the terms of the mortgage, taking advantage of interest rates today, which then typically leads to a reduction in the mortgage payments and sometimes a reduction in the amount paid over the life of the loan.
Qualifications for HARP aren’t stringent, but you do have to meet some basic criteria. First, you have to own and reside in the home you are refinancing. It needs to be your primary residence. Second, you have to be current on all of your mortgage payments for the last twelve months and it is required that these payments have been made on time. They want you to show that you are capable of handling the loan if you are approved for a refinance. In addition to this, you have to have a loan-to-value that is greater than eighty percent. Most homeowners looking to secure this particular refinance will not have a problem with this. And last, the mortgage has to be controlled by a conventional lender that follows the Freddie Mac/Fannie Mae underwriting guidelines.
HAMP – The Obama Loan Modification
The second part of the Making Home Affordable program is HAMP, which stands for Home Affordable Modification Program. HAMP is not a refinance. Instead, it is loan modification program for homeowners struggling to make ends meet. With this program your mortgage servicer works with you to reduce the monthly mortgage payment, in the hopes that you will be able to regain control of the mortgage so you don’t end up in foreclosure.
As with HARP, there are certain requirements that need to be met for qualification. One of these requirements is that you have to have tried other options before applying for this modification. There are plenty of debt consolidation programs available to homeowners that can help you get back on top of your debt so before you consider HAMP you can and should approach them for help. If that fails, you then contact your lender. To qualify for HAMP you must already be in default. However, you can’t be more than twelve months in default. You need to also reside in the home you are trying to keep. And you have to show that you can cover the reduced monthly payments on your current income. Before you can be approved for this program you will have to go through a trial run of three months to make sure you can meet the requirements. If you want to take advantage of HAMP you will need to contact your mortgage servicer to determine whether or not you are eligible for the program.
As these are both government programs, in order to qualify for either of them you will have to go through a federally approved lender. Those lenders that abide by the Freddie Mac/Fannie Mae underwriting guidelines won’t e able to help you. In addition, keep in mind that all refinances do require a certain amount of money invested in order for the refinance to be approved. So HARP will cost you a bit but the end result will be worth it if it reduces your payment enough that you are able to keep the home.