The housing market has been nothing short of volatile over the last decade, making it a stressful time for homeowners. Some were able to capitalize on low interest rates, while others are struggling to pay their monthly mortgages.
Refinancing can be a great option to secure better mortgage terms, but not everyone qualifies. But there’s hope.
The government launched the Home Affordable Refinance Program (HARP) in 2009 to help homeowners who have little or no equity refinance and secure a lower interest rate. Updates to the program over the years have benefitted homeowners still grappling.
Here’s everything you need to know about HARP, including how it can help you save money and reduce the cost of your mortgage debt.
What is HARP?
The purpose of HARP is to offer a refinancing option to homeowners who:
- Have little equity in their home
- Owe as much on their mortgage as their home is worth
- Owe more on their mortgage than their home is worth
HARP can help you make your mortgage more affordable. As of 2016, more than 3.4 million homeowners have refinanced through the program, saving an average $2,400 a year.
Technically, there are two versions of the program: Fannie Mae’s DU Refi Plus and Freddie Mac’s Relief Refinance. But they’re essentially the same.
The government made numerous updates to the program over the years to make mortgage repayment easier for homeowners. Here are some of the new benefits:
- No home appraisals: Some homeowners won’t be required to have their home appraised. That means they can save money and refinance more quickly.
- No underwater limits: Loan-to-value (LTV) ratio limits for fixed-rate mortgages used to be 125%. You can now refinance no matter how much value your home has lost.
- Modified fees: In 2011, the government reduced the maximum amount of risk fees. These fees charge lenders for higher-risk loan characteristics, such as borrowers with low credit scores, high LTVs, or limited income. Lowering these fees means more savings for borrowers.
- Less paperwork: You don’t need to provide as much backup documentation for things such as income verification.
- Extended loan acquirement date: In 2013, more borrowers became eligible for HARP. The eligibility date was extended from the loan acquirement date to the date on the note.
If you weren’t eligible in the past, it might be worth looking at the new terms to see if you qualify now.
How to qualify for HARP
Here are the standard criteria you must meet to qualify:
- You have to be up-to-date with your mortgage payments and can’t have any payments that were 30-plus days late in the past six months. You also can only have made one late payment in the last year.
- The home must be your primary residence, a one-unit second home, or a one-to-four unit investment property.
- Your loan must be owned by Freddie Mac or Fannie Mae.
- The home loan was originated on or before May 31, 2009.
- Your home must have an LTV ratio of more than 80%.
If you meet all these terms, HARP could help you get a lower monthly payment or reduce your interest rate. This is especially helpful if you’re dealing with other debt from credit cards or paying off student loans.
Just remember, there are some drawbacks to consider. While you can save money by changing your monthly payments, you can’t change the fact that you have a loan for more than the value of your home. Even with HARP, it can take a while before you’re in the green.
The application process for HARP
If you meet the HARP eligibility requirements, applying is pretty painless. You have to follow these three main steps, which are similar to the process you went through to obtain your original mortgage.
- Compile your paperwork: You’ll need all your basic mortgage and financial information available, such as your mortgage statements and pay stub or income tax return.
- Call your mortgage company or a HARP lender: Ideally, your current mortgage company will be an approved HARP lender. This will make the process even easier since they’ll have your loan on file. Simply call them and ask if they participate in the program. If not, you can find a HARP lender through the Fannie Mae or Freddie Mac website.
- Fill out an application: After providing paperwork and confirming your eligibility with the HARP lender, you’ll be told how to apply and how to proceed through the closing process.
More updates to HARP are coming
With various changes, HARP has helped more homeowners better manage their mortgage debt. And more changes are coming.
HARP is currently due to expire at the end of 2018. Starting in 2019, Fannie Mae and Freddie Mac are planning to offer their own programs. Each program is expected to be easier to qualify for and accept mortgages with a loan note date on or after Oct. 1, 2017. Freddie Mac will require a 97% LTV ratio; Fannie Mae will require a 95% LTV.
A lot can change in the next few months with these programs, so be vigilant. In the meantime, HARP is still available if you qualify. If you don’t, at least there will be similar programs to choose from in 2019.