Understanding the Obama Refinance

In 2007 the real estate market was doing great. Prices were good, homes were selling, and interest rates were decent.  With very little warning, that suddenly switched. The bubble burst and everything crashed. Market values dropped, jobs started to disappear, and homeowners that thought they were sitting on a cushion of equity abruptly realized that not only were they barely making ends meet, that equity had vanished along with the bubble. Many of them found that they owed more on the home than it was actually worth. This was a devastating blow. But out of the ashes of the previously profitable real estate market came the Obama refinance – a program specifically geared toward homeowners that found themselves facing financial hardship as a result of the economic decline.

What is the Obama Refinance?

HARPThe Obama refinance is a refinance program that helps homeowners who are underwater on their mortgage. It essentially gets them back in a position where they are on top of their mortgage, rather than the mortgage being an overbearing financial master. This new refinance program was termed the Home Affordable Refinance Program (HARP).

If you’re wondering why the program was created, the answer is actually quite simple. When homeowners stop spending money to cover the expenses of an unmanageable mortgage, the entire economy suffers. People tighten their belts, bunker down, and wait for the storm to pass before they spend any more money than is absolutely necessary for survival. With less money going into the economy it becomes more difficult for the economy to recover. So HARP was created to free up the funds of the homeowners, making it easier for them to meet their mortgage payment in the hopes that some of the extra money would flow into the damaged economy.

When things can get a little to mach to handle here is another place to look for some good advice and wether the Obama refinance is for you.

Qualifications for this Refinance

Qualifying for the Obama refinance is not a difficult task. First and foremost, you have to be a responsible homeowner. This program is for homeowners that are not facing foreclosure and haven’t defaulted on their loans in any way. Part of the qualifications require that you be current on your existing mortgage payments and that you have no payments over the last twelve month period that are more than thirty days late. In addition to this, the home you are refinancing must be your primary residence, and the loan you currently have for this home has to be held by a conventional lender rather than a federally insured lender. There are different programs available for homeowners who have federally insured loans.

When you refinance with HARP you do so with the hope that you will reduce your interest rate and/or your mortgage payment. This program isn’t a way to reduce the amount of the mortgage, rather it is a way to make the mortgage you have more affordable. With HARP you can refinance up to 125% of the home’s value, but it only applies to the first mortgage. Existing loans on the home will not apply and will still remain below the first mortgage. While refinancing you will be able to reduce your interest payment but you won’t be able to pull out any cash to pay off existing debt. There are two reasons for this. First, if you’re refinancing up to 125% of the home’s value, you have no equity to pull out. And second, this refinance is a way to make your home more affordable, not to reduce other forms of debt.

When you go to the lender and request a refinance, your financial situation will be considered before a decision is made. Part of the requirements for HARP is that you have the financial ability to take on the new mortgage payments so if you’re in a situation where your monthly income has dropped dramatically, you may not be able to take advantage of this option. In addition to the mortgage payments, with this particular refinance you will be required to continue paying on your mortgage insurance so this is an expense you need to take into account before you secure the loan. Monthly mortgage payments protect the lender against a possible default on the loan, which makes them more willing to work with homeowners, but a downside to this is that you have to take on the additional expense of the insurance.

While there are many different types of refinances available to homeowners, this particular refinance may be the one to consider if you are in a situation where you are underwater on your mortgage. You never know what benefits you will experience by reducing your interest rate and regaining control of your mortgage.