The housing bubble, followed by the real estate collapse in 2008, left many homeowners underwater on their mortgages, owing much more than their home was worth. With the collapse of the market, new rules were put into place for mortgage lenders to protect consumers. A new program, called a HARP loan, was created to assist homeowners to get back into a steady housing situation.
HARP Loans Explained
President Obama passed the Federal Housing Finance Agency's HARP - or Home Affordable Refinance Program - in 2009, in response to the catastrophic housing climate that resulted from the market crash in 2008. Homeowners had purchased homes that they could no longer afford due to job loss, and they couldn't sell or refinance because their home value drastically dropped after the market crashed. With no equity in their homes and a down market, many families were faced with foreclosure, and the HARP loan was created to help homeowners get their housing payments lowered to better suit their situation.
The HARP loan is designed to assist homeowners who owe more than or close to the amount their home is worth. The loan is a refinance that can help homeowners get better a mortgage than their current home loan in by decreasing the monthly payment, changing from a variable interest rate to a fixed interest rate, or getting into shorter-term mortgages in order to pay the property off more quickly. Appraisals are not usually required since there is no limit to how underwater you may be on the mortgage. There is no underwriting process, and closing costs may be able to be rolled into the loan, so the HARP is usually easier to deal with than a standard refinance.
HARP Eligibility
You may be eligible for a HARP loan if you meet the following conditions:
- Your mortgage is owned or guaranteed by Fannie Mae or Freddie Mac.
- Your mortgage was originated before June 1, 2009.
- Your loan-to-value ratio is greater than 80 percent, meaning that you owe more than 80 percent of what your home is worth.
- Your mortgage has not been refinanced under HARP previously (unless it is a Fannie Mae loan that was refinanced under HARP from March through May of 2009).
- You are current on your mortgage at the time of the refinance, with no late payments in the past six months and no more than one late payment in the past 12 months.
- You demonstrate that you are able to afford the new mortgage payment.
- The refinance improves your situation as a homeowner.
You must apply by September 30, 2017 to be considered for a HARP loan.
Documents to Collect
You'll need to provide a few documents to refinance through HARP. These include:
- A mortgage statement
- 30 days' worth of paystubs
- Tax returns for the past year
Your credit will be pulled by the lender with which you're refinancing. According to Alliance Mortgage, your credit score impacts loan terms. Call your mortgage servicer to see if they provide HARP loans. If they don't, you can find a HARP lender at KnowYourOptions.com.
Stringent Qualifiers
The HARP loan was created to help Americans who are upside down on their mortgage, but it is not available to everyone facing that hardship.
- If your loan provider is not backed by Fannie Mae or Freddie Mac, you are not able to utilize this program. You can check online to see if your mortgage lender is backed by Fannie Mae or Freddie Mac.
- According to Alliance Mortgage, if you're paying mortgage insurance, you may be restricted to refinancing with your current lender. Speak with them about their specific terms.
- If you have any late payments in the last six months, or you have had more than one late payment in the last 12 months, you are not eligible for this loan. If you believe you can pay your mortgage on time for the foreseeable future and may become eligible, wait until you meet the on-time payment criteria to apply.
- If you are not able to pay your mortgage due to financial hardship, a loan modification may be a more suitable option.
Righting the Ship
If you meet all of the requirements, it will most likely benefit you financially to refinance with a HARP loan. The government program is a step in the right direction, providing some relief without damaging your credit, and is helping to make our real estate market whole again.
