HARP Program Reviews from the Experts
In the midst of the housing market collapse that started in 2006, the Federal Housing Finance Agency created a program to help homeowners avoid foreclosure. The program, Home Affordable Refinance Program (HARP), allows select mortgage holders to refinance their homes to lower interest rates and receive more affordable payments, even if the home is underwater.
Over the past nine years, the program has helped millions of homeowners refinance their mortgages — in many case allowing homeowners to avoid foreclosure. But the program is going to shut down on Dec. 31, 2018, and there are nearly 50,000 homeowners who could still benefit from HARP. We explain how a HARP refinance works and who should take advantage of the program as soon as possible.
What is HARP?
HARP is a mortgage refinancing program designed to help stem the tide of widespread mortgage defaults that plagued the United States in the wake of the real estate price collapse.
The program allows borrowers with negative equity (meaning they owe more than their house is worth) to refinance their mortgage. With assistance from HARP, borrowers may reduce their interest rate, reduce their monthly payment or shorten the length of their mortgage to go above water more quickly. Even people with poor credit or who have suffered a recent bankruptcy may qualify for a HARP refinance.
HARP is a streamlined refinancing process, which is part of the program’s appeal, said Maria Fernandez, senior associate director of FHFA housing and regulatory policy. “You don’t need a new appraisal. You don’t have to qualify for new mortgage insurance. You don’t have to put money down to refinance if you’re underwater.”
Who is eligible for a HARP refinance?
Borrowers who want to refinance using HARP must have a mortgage owned by either Fannie Mae or Freddie Mac. Since Fannie Mae and Freddie Mac are not banks, their names won’t be on your mortgage note. Figuring out whether one of these enterprises owns your mortgage isn’t difficult though.
Simply enter your name, address and last four digits of your Social Security number in BOTH of these lookup tools to see who owns your mortgage.
Other requirements for a HARP refinance
In addition to having a mortgage owned by Fannie or Freddie, you must meet the requirements to refinance through HARP:
- The value of your loan divided by the value of your house must be more than 80% (0.8). This is called your loan-to-value ratio (LTV). If your house is underwater you’ll have an LTV above 100%.
- You took out mortgage on or before May 31, 2009.
- You are current on your mortgage payments.
- You have no 30-day late payments in the last 6 months.
- You have no more than one late payment in the past 12 months.
- The home must be your primary home, a 1-unit second home or an investment property (1-4 units only).
Is HARP worth it it?
With national real estate prices nearing all time highs, many people don’t need HARP to refinance their homes. However, the FHFA estimates that nearly 50,000 homeowners could still benefit from refinancing using HARP. These homeowners have mortgage interest rates that are at least 1.5 percentage points higher than prevailing interest rates today. By refinancing to a lower interest rate mortgage, these borrowers could save an average of $2,290 per year.
Tendayi Kapfidze, chief economist at LendingTree, recommended, “If you can save 50 basis points (0.5%) on your interest rate, that’s usually going to be a compelling reason to refinance. And if the only way you can qualify to refinance is with HARP, you should look into it very seriously.”
Likewise, Fernandez emphasized, “Come the end of the year, the opportunities to refinance are going to look different [for people currently qualified for HARP]. The streamlined process that HARP created won’t always be an option.”
Even when considering the cost of upfront refinancing costs, these borrowers could “break even” within just a few years. This calculator can help you decide whether you can save money by refinancing your existing mortgage.
The future of HARP
With fewer than 3,000 loans refinanced through HARP in the second quarter of 2018, it looks like HARP will really sunset at the end of 2018. Kapfidze told LendingTree, “At some point, there has to be a last year for HARP. If there were still strong demand for the program, they might keep it open longer, but that doesn’t appear to be the case.”
Fernandez told LendingTree that HARP was created during a state of emergency. Now that the real estate climate has changed, HARP isn’t necessary for such a widespread group of borrowers.
However, Fannie Mae and Freddie Mac have both released a high LTV refinance option to preemptively help underwater borrowers in need of assistance in future emergencies. The Fannie Mae option is called High Loan-to-Value Refinance option. The Freddie Mac program goes under the name Enhanced Relief RefinanceSM Mortgage. Fernandez explained that the new programs will allow lenders to have a product in place if borrowers struggle with a regional downturn or otherwise need to refinance an underwater house.
Is HARP an option for you?
HARP can still save an estimated 50,000 people money through a streamlined refinance process. If you’re eligible to refinance using HARP, reach out to your lender right away.
Alternatives to refinancing through HARP
If you don’t qualify for HARP, or you don’t want to rush to qualify before the deadline, you may qualify for other refinance options. These are a few options that people with limited home equity may want to consider.
High LTV limited cash out refinance
In the future, the high LTV limited cash out refinance programs will help borrowers that owe more than their house is worth to refinance to a more affordable payment structure. This program is only available to people with conventional mortgages owned by Fannie Mae or Freddie Mac. Depending on the enterprise that owns your mortgage, the name of the program will differ.
- Mortgage must be owned by Fannie Mae or Freddie Mac
- Mortgage must be originated on or after Oct. 1, 2017
- 1-unit primary residence must have an LTV 97% or higher
- No late payments in the last 6 months
- No more than one 30-day late payment in the last 12 months
- Application received on or after Nov. 1, 2018
- At least 15 months has to pass between mortgage origination and high LTV mortgage refinance.
Up to $5,000 of closing costs may be financed.
Standard limited cash out
A standard limited cash out refinance allows many homeowners to refinance their mortgage to a lower interest rate or a different payoff term. It doesn’t matter what kind of mortgage you have in place, you can refinance using the standard limited cash out if you meet the eligibility and loan-to-value standards.
As long as you meet the other requirements listed below, you should qualify for a standard, limited-cash out refinancing costs.
You can expect to pay closing costs (including a home appraisal and a loan origination fee) when taking out a standard refinance. Loans with less than an 80% LTV will require a monthly private mortgage insurance premium.
- Minimum credit score 680 for debt-to-income (DTI) ratio 36% or below, or 700 for DTI ratio above 36%
- Up to 95% LTV in most cases (up to 97% LTV for 1-unit principal residences).
FHA standard (rate and term) refinance
Borrowers who don’t have a Federal Housing Administration-guaranteed loan may use an FHA standard refinance to take out a new FHA mortgage. If you’re not eligible for HARP but need to refinance to lower your monthly payment, the FHA loan refinance may be a good option for you.
It’s also important to note that current FHA loan holders may be able to refinance their mortgage through a streamlined refinance process.
Besides standard closing costs, borrowers must pay upfront mortgage insurance (1.75% of the loan amount) and monthly mortgage insurance premiums.
Credit score and other requirements
- Minimum credit score of 500 for LTV up to 90%, or 580 for LTV greater than 90%
- 97.75% maximum LTV (85% for secondary residences)
- 43% maximum DTI (higher with compensating factors)
- Must have made 6 months of on-time mortgage repayments to be eligible
VA Interest Rate Reduction Refinance Loan (IRRRL)
Homeowners who currently have a mortgage guaranteed by the Department of Veterans Affairs may qualify for an IRRRL.
The IRRRL loan is only available to current VA mortgage holders who can refinance their mortgage to a lower interest rate or refinance from an adjustable-rate mortgage to a fixed-rate mortgage.
Besides typical closing costs, you must pay an upfront funding fee of 0.5%. All fees can be financed.
- No minimum credit score
- No maximum LTV
- No DTI limits