One of the effects of the global financial crisis of 2008 was that many people, who otherwise would have been able to refinance their homes, were unable to due to falling home values. As mortgage rates dropped to record lows, many homeowners wanted to refinance to take advantage. Unfortunately, any banks were enforcing a strict 80% loan-to-value (LTV) requirement, and falling home values meant that many homeowners no longer qualified. In fact, some were upside down on their mortgages due to the drop.
One of the programs introduced by the government to help homeowners refinance to lower rates was HARP. This program wasn’t designed to modify mortgages. Instead, it was aimed at homeowners in good standing who were unable to refinance due to high LTVs. HARP was introduced in 2009 and modified in 2011 to streamline the process, in some cases waiving the appraisal requirement. Other changes impacting eligibility and convenience have been made to the program.
HARP has been extended beyond its original expiry date. Currently, though, HARP is set to expire at the end of 2016. If you qualify for HARP and want to refinance your home, the time to do it is by December 31, 2016.
Benefits of Refinancing through HARP
No matter how much your home has fallen in value, you can refinance if you are eligible for HARP. This provides you with a way to take advantage of mortgage rates near record lows. This can reduce how much you pay overall in interest on your mortgage, as well as improve your monthly cash flow by reducing your monthly payments. In the past, a ceiling of 125% LTV was imposed on HARP refinances, but that has been done away, and it’s possible for you to refinance no matter how far underwater you are.
On top of that, HARP can streamline the refinance process. In some cases, the appraisal requirement has been waived, and there is no underwriting. This means that your loan goes through faster, and you don’t run into some of the hiccups that can cause a conventional refinance to fall through. I refinanced my home through HARP in 2012 and found the process simple and inexpensive. It improved my cash flow, reduced my total interest, and set up a situation that allowed me to sell my house in 2014 without trouble.
Are You Eligible for HARP
Since its introduction in 2009, HARP has been modified to include more homeowners. Even so, not everyone is eligible for HARP. Here are the eligibility requirements for the program:
- Current on your mortgage: You must be up-to-date on your mortgage payments. You cannot have any 30+ late payments in the last six months. You can have had no more than one 30+ late payment in the last 12 months.
- You are refinancing your primary residence: For the most part, the HARP program is meant for those who live in their homes. However, it is possible to use the program to refinance a one-unit second home, or to refinance an investment property that has one to four units.
- Freddie Mac or Fannie Mae owns your mortgage: To qualify, your mortgage must be owned by one of these companies. You can look up your mortgage, to see if it qualifies, by using tools offered by Freddie Mac and Fannie Mae.
- LTV exceeds 80%: While there is no ceiling on the LTV to qualify for HARP anymore, there is still a floor. You need to have less than 20% equity in your home if you want to refinance. This program is meant mainly to help those homeowners who would otherwise qualify for a conventional refinance, but home values have dropped far enough that they don’t have enough equity in their homes.
- Loan origination prior to May 31, 2009: You must have secured your mortgage before May 31, 2009. It doesn’t matter when Fannie or Freddie took it over, as long as the origination date was before that time.
Even if you have not qualified in the past, you might qualify now, due to changes to the program in the last few years. Double-check with a qualified mortgage broker or loan officer to find out if you are eligible now, and if you can benefit from refinancing with HARP before the end of 2016.