As a homeowner, did you know that it’s possible to refinance even if you owe more on the home than it is actually worth? It’s true. Most people think that in order to refinance you need to at least have some equity in the home. For most refinances, this is the case, but for homeowners who suffered as a result of the housing collapse, there are other options. You’ll hear it talked about as FHA HARP refinance or FHA short refinance. In reality, it is simply a refinance you can do if you are underwater on your mortgage to regain control of the situation you are in.
FHA HARP Refinance vs. FHA Short Refinance
When you go to refinance an underwater mortgage, you are going to hear about two different programs. The FHA HARP refinance program and the FHA short refinance program. These two programs may even be talked about as if they were interchangeable and pretty much the same thing. In reality they are two separate programs with two separate sets of eligibility guidelines, but the end result of both is a mortgage that is easier to handle.
When you hear people discuss the FHA HARP refinance program what they are talking about is the government program created for homeowners with existing conventional loans. HARP isn’t for homeowners who have loans that are insured by the federal government – it only applies to homeowners who have loans secured by lenders who follow the underwriting guidelines of Freddie Mac/Fannie Mae.
With HARP you can refinance up to 125% of the value of your home, reducing the interest rate and hopefully the annual percentage rate as well. The goal is to enable you to refinance to a rate that is low enough to save you money on your monthly mortgage payment. This money would then in turn be put back into the economy by you. It is designed to be a win-win situation for everybody.
The short refinance is similar to HARP. The guidelines for acceptance into the program are similar, but with the short refinance the lender actually agrees to forgive part of the debt, bringing the mortgage down to no more than 97.5% of the value of the home. This cannot be done without written approval of the lender.
Qualifications for These Programs
The qualifications for these programs are not hard to meet, but they are worth noting. In order to take advantage of either of these programs you have to be refinancing your primary residence so you can’t use it to refinance your rental home. You also have to be current on your mortgage payments, with all payments for the previous twelve month period being made on time and in full. Unfortunately those homeowners who are already in default or who are looking at foreclosure will not be able to take advantage of the Making Home Affordable programs.
With HARP you have to have a loan-to-value ratio that is greater than eighty percent, the loan has to have been owned by a conventional lender as of May 31, 2009, and you can’t have a previous HARP refinance already done. This is a one-time deal.
To qualify for the short refinance you will have to come to the table with a minimum credit score, you’ll need to show that you are underwater on the mortgage, in this case you owe at least 15% more than the value of the home, and that you are not in a place to get back on top of it. If you have had a previous loan modification you may still be able to qualify so don’t let that stop you from applying.
It’s important to realize that these loans are both refinances which means you will have to deal with closing costs and refinance fees. They are an additional expense that can add up, so keep that in mind when you are refinancing. As a homeowner you will need to make sure the closing costs and fees are outweighed by the amount of money you will save and the financial benefit you will experience. Another little tid bit that is worth mentioning is that both of these loan options have a limited window of opportunity behind them. They are not permanent additions to the loan market. They were designed to get the job done and then be dropped. If you want to take advantage of either one of them, you will need to discuss the option with your lender to determine whether or not he is willing to work with you. The sooner you do, the better because before too long these should both be items of the past.