By JULIE RAINS
Want to refinance your mortgage but aren't able to qualify for a conventional refinance? Consider help from HARP, the Home Affordable Refinance Program sponsored by the Federal Housing Finance Agency (FHFA).
Who might benefit from HARP?
According to David Hosterman, branch manager of Castle & Cooke Mortgage in Greenwood Village, Colorado, "this program is designed to help consumers who are underwater or near-underwater refinance their mortgage."
If you're underwater (your mortgage balance is more than your home's worth) or near-underwater (you have little equity in your home), your loan-to-value (LTV) ratio may prevent you from qualifying for a conventional refinance.
You can calculate your LTV by dividing your mortgage balance by your home's value. For example, if you owe $250,000 on a home that's worth $200,000, your LTV is 125 percent. If your balance is $190,000 on the same home, your LTV is 95 percent.
Depending on the type of loan and property, you may be able to borrow up to 97 percent of the LTV with conventional mortgages (non-government loans) and up to 100 percent with government loans, says Casey Fleming, author of "The Loan Guide: How to Get the Best Possible Mortgage." In contrast, HARP has no LTV limit for fixed-rate mortgages and a 105 percent cap for adjustable-rate mortgages.
How can refinancing with HARP help?
Hosterman says HARP may "help put responsible borrowers in a better position. Refinancing can reduce monthly principal and interest payments, reduce your interest rate, reduce your amortization period or move you from a risky loan structure to a more stable product." For example, you may be able to move from an adjustable-rate mortgage to a fixed-rate mortgage.
The program helped Eric Nisall, accountant and entrepreneur in Coral Gables, Florida. The value of his home fell from more than $230,000 in 2006 to less than $100,000 in 2012, wiping out the equity he had built by making steady mortgage payments and an initial down payment of 15 percent. Because he was underwater, he was unable to get a conventional refinance.
Nisall became eligible for HARP when the program was updated. He worked with his original lender to refinance his mortgage through HARP, which reduced his interest rate by more than 2 percent and shaved about $300 off his monthly mortgage payments.
By arranging to add closing costs of approximately $2,500 to his loan balance, he paid nothing out of pocket to snag these benefits.
What are the basic eligibility requirements for HARP?
To qualify for a HARP refinance, Hosterman says your current loan must be a Fannie Mae- or Freddie Mac-backed mortgage. You can enter your loan information (your name, address and the last four digits of your Social Security number) into Fannie Mae Loan Lookup or Freddie Mac Loan Look-Up tools to determine its status.
In addition, you must meet the following HARP eligibility requirements:
- Your loan originated on or before May 31, 2009.
- Your mortgage payments are up to date, with no late payments (30 days or more) in the past six months and no more than one late payment in the past 12 months.
- You're refinancing your primary residence, a single-unit second home, or an investment property with four or fewer units.
- Your loan is owned by Freddie Mac or Fannie Mae.
- Your LTV ratio is greater than 80 percent.
Your lender may also have its own guidelines in addition to HARP rules.
What's special about HARP?
Fleming says HARP may be the only way your refinance could be approved. That's partly because a defining feature of this program is its generous LTV guidelines compared to conventional refinance.
In addition, Hosterman says two major benefits associated with this program are that you may not have to get an appraisal and you may be able to reduce your mortgage insurance premiums.
Skipping an appraisal may save you $450 or more, depending on the market. You won't know whether you'll need an appraisal, though, until your lender runs your application through the Fannie Mae or Freddie Mac underwriting systems, Hosterman explains.
HARP lenders are encouraged to find mortgage insurance coverage that provides the lowest cost to borrowers. Hosterman says you may be able to maintain the mortgage insurance from your initial loan.
So, even if prices have risen, you may save with HARP compared to a conventional refinance. In Nisall's case, he had to buy new mortgage insurance but the monthly cost of it declined slightly.
Should I refinance with HARP?
Fleming suggests considering your "circumstances, concerns and goals to determine if a refinance will provide the benefit" desired. If you want to reduce your monthly payments, save money on interest and shorten the loan term, that may not be possible. "These goals are not necessarily compatible," he says, so it makes sense to clarify what you most want to accomplish before moving forward.
For example, a refinance may allow you to lower your monthly payments but require you to pay more interest over the life of your loans -- depending on the interest rates and amortization periods of your original and refinanced mortgages. Closing costs can also offset the benefit gained from refinancing.
Furthermore, Fleming says that HARP loans are typically a "little more expensive than a conventional refinance." You might pay a higher interest rate or more "points" with a HARP refinance compared to a conventional one. Points are upfront fees you may pay to receive a lower interest rate or cover other expenses.
However, if you currently have mortgage insurance, Fleming says a HARP loan may give you a lower monthly mortgage payment even if you pay a higher interest rate. That's because you may be able to forgo the insurance premiums with a HARP refinance. With a conventional refinance, you'll likely need to get insurance - if your LTV is more than 80 percent.
In addition, individual circumstances may warrant looking at other types of loans. For example, if you're veteran, "a VA loan is likely a much better deal," Fleming says. This is especially true if you have a service-related disability, as you may not have to pay a funding fee.
It's also important to keep in mind that your credit score may affect your HARP refinance. Fleming says a lower score "could prohibit you from qualifying, or it could raise your costs" through higher interest rates or discount points.
How can I get started?
If you decide to pursue a HARP refinance, gather your mortgage statements and proof of employment and income, such as your paystubs and income tax returns.
Consider contacting your current mortgage company and asking if it's an approved HARP lender. You could also find an approved HARP lender by searching databases offered by Fannie Mae and Freddie Mac.
Consider talking with a lender to determine if you qualify for HARP refinancing and applying before the program deadline of Sept. 30, 2017. A lender may help you through the application, approval and closing processes.
If you're turned down, you might want to ask to speak to a specialist or contact another financial institution, as lender guidelines vary.
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