Loss of home equity can be devastating for homeowners. It can make your home feel like a trap you cannot escape. Homeowners who find themselves struggling to make payments on their houses that are now valued less than what they paid for may qualify for a Home Affordable Refinance Program (HARP) loan. The refinance program was introduced in 2009 by the Federal Housing Finance Agency after the big housing market crash.
Many homeowners didn't qualify for traditional refinancing of their mortgages because their loan-to-value (LTV) ratio was too high. When HARP originally launched, it was intended for those whose LTV ratio was at least 80 percent, and it has since expanded to include those with an LTV ratio higher than 125 percent.
You must meet certain criteria to qualify for this special HARP loan, and you can only benefit from this refinancing loan once.
Mortgage Owned by Fannie Mae or Freddie Mac
The first requirement you must meet is that your mortgage is either owned or guaranteed by lenders Fannie Mae or Freddie Mac. In addition, your loan has to have been sold to one of these lenders on or before May 31, 2009. Chances are, one of these government-sponsored enterprises owns your mortgage because they own about 80 percent of the market share, but other mortgage and refinance lenders may work with you, so be sure to ask.
High LTV Ratio & Current on Payments
Originally, the HARP loan was only available for those whose LTV ratio was higher than 80 percent, but lower than 125 percent. That cap has been removed.
This loan is specifically made for those whose houses have lost equity and cannot easily refinance in an unstable market with rising interest rates. For example, if you bought your house for $185,000 and its estimated value is now $145,000, you have an LTV ratio of 127.6 percent. You also must be current on your mortgage payments, and that means no payments later than 30 days in the past six months and no more than a single late payment in the last year.
You can only qualify for a loan if the house you want to refinance is your primary residence, it's a second home that's a single unit house, or it's a one- to four-unit rental or investment property. Anything larger won't be eligible for this special loan that's designed to help homeowners get their heads above water.
Guidelines are less restrictive now than they were when the program first launched, so if you've tried to refinance with a HARP loan before, you might want to try again. You no longer need to have a minimum credit score. You could still be eligible even after a recent bankruptcy. In many cases, homeowners are no longer required to get an appraisal to have their loan backed, so more loans are being granted.
The first step in finding out if you're eligible is to check if your mortgage is owned by Fannie Mae or Freddie Mac. To find out if Fannie Mae securitized your mortgage, go here and enter your address. For the Freddie Mac lender, enter your address here.
This specialized loan can help you refinance so you pay a lower interest rate, which means lower monthly payments. Or you can work out a fixed-rate plan, rather than an adjustable-rate mortgage, which can lower your overall cost.
To take advantage of this federal program, you must refinance before September 30, 2017, which is when the HARP loan is set to end. According to those who created this government-sponsored program, you could save up to $2,400 a year with this refinanced loan.