Refinancing your mortgage to lock in a better interest rate is a great way to create some extra breathing room in your budget. But in the past, homeowners who had little to no equity in their home (and didn’t want to shell out thousands in closing costs) were out of luck when it came to refinancing.
In an attempt to make loans more affordable for these homeowners and curb the rate of foreclosures, the Home Affordable Refinance Program (HARP) was introduced in 2009. Although the program eliminated some traditional refinancing requirements, many eligible homeowners haven’t taken advantage of this hugely beneficial program. And now, time is running out.
HARP will be in place only until the end of 2016, making now the perfect time to take advantage of this “free” money and refinance your Memphis, TN, home. Here’s some more information to help you decide if refinancing with HARP is right for you.
What is HARP? Am I eligible for HARP?
HARP covers loans owned by Freddie Mac or Fannie Mae and caters to homeowners who are current on their payments but have a loan-to-value ratio that is equal to or greater than 80%. In addition, the home in question must be either a primary residence, a one-unit second home, or a one- to four-unit investment property.
HARP should be the first choice for homeowners with a loan that is more than seven years old with low equity and a higher interest rate, says Mike Shaw, a mortgage adviser and owner of Shaw Financial in Littleton, CO. “HARP provides premium rates to homeowners in difficult mortgage situations [who have] lower credit scores, specifically for those with little or no equity at all,” he explains.
While earlier versions of HARP excluded homeowners who were underwater on their mortgages (with a loan-to-value ratio of more than 125%), a 2012 update and the release of HARP 2.0 eliminated this exclusion. Some lenders add on further requirements to perform these refis, requiring borrowers to meet a minimum credit score of 620, for instance, but many lenders have limited or no additional requirements.
Estimates made by the Federal Housing Finance Agency determined that as of June 2015, 429,379 American homeowners are still eligible for HARP. Shaw believes many homeowners think the program is simply too good to be true — but with eligibility requirements becoming increasingly watered down since its 2009 inception, taking advantage of this program is relatively simple and too good to overlook.
Why should I consider a HARP loan?
If you are one of the thousands of homeowners eligible for HARP, the next step is to determine how you would benefit from enrollment. Thanks to strong government backing, HARP offers refinancing rates that are at or below rates conventionally applied to loans with 20% equity, and there are no credit score requirements. In addition to locking in a lower interest rate, you can potentially get a shorter loan term or switch from an adjustable-rate mortgage to a fixed-rate mortgage.
HARP also allows you to add closing costs into your new loan. Both Fannie Mae and Freddie Mac allow up to 4% of the loan balance to be added in as closing costs, and Freddie Mac also allows $5,000 (whichever amount is less). For many homeowners, this means no out-of-pocket closing costs. “My clients have benefited from lower payments with HARP mortgage rates; a half-percent lower than a regular refinance,” says Shaw. “For most HARP loans, the appraisals were waived and the costs were lower as well. Recently, I was able to help a family eliminate mortgage insurance and get a new low rate, saving them hundreds each month. They did not bring any money to closing.”
How do I sign up for HARP?
With housing prices on the rise and the number of underwater mortgages on the decline, the HARP program will officially stop on December 31, 2016. If you want to take advantage of this program and refinance before it’s too late, here’s how to get started.
- Gather your loan information and determine whether you’re eligible. If you have a loan with Fannie Mae or Freddie Mac that was originated on or before May 31, 2009, and your loan-to-value ratio is greater than 80%, you could be a great HARP candidate. Gather up your loan documentation for the next steps.
- Contact your mortgage company. Call your mortgage company to see if they are an approved HARP lender. If they are not, you’ll need to find one who works with Freddie Mac or Fannie Mae. The HARP website has tips for how to find an approved HARP lender. Just don’t delay — remember, the program ends this year!