There may be some good news for homeowners who want to refinance their home to take advantage of historically low mortgage rates, but aren’t able to because they are underwater on their mortgage. Many lenders aren’t willing to refinance a mortgage when the homeowner owes more than the home is worth. But the updated Home Affordable Refinance Program (HARP) may change this for some homeowners, helping them avoid high interest rates and possible foreclosure.
What changed in the new Home Affordable Refinance Program? There are a couple big changes: First and foremost, the program was set to expire in 2012, but the new rules extend the program through December 31, 2013. The next major change was eliminating the cap on the loan-to-value ratio. The old rules prevented homeowners from refinancing if they owed more than 125% of their home’s value. This limit is now removed. The new rules also eliminate the need for a new home appraisal in most circumstances.
Real estate investors or second home owners may also qualify under the new rules. Eligible properties include single-family homes, condos, co-ops, second homes, or investment properties with up to four units..
Who qualifies for HARP:
- Your mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae, and must have been sold to them on or before May 31, 2009.
- You can only use HARP once, so if you have already used it, you will be ineligible to use it again (there may be some exceptions if you have a Fannie Mae loan which was refinanced under HARP from March-May, 2009).
- The mortgage loan-to-value (LTV) ratio must exceed 80% (LTV ratios of less than 80% should be eligible for a traditional refinance).
- Must be fixed rate loan (adjustable rate loans or sub-prime loans do not qualify).
- Loans must be up to date. You cannot have any late payments in the previous six months, and no more than one late payment in the previous 12 months.
Find out if your home loan is held by Fannie Mae or Freddie Mac: If you believe you qualify for the Home Affordable Refinance Program, then you should verify which lender owns your mortgage. You can use the following online tools to help determine if Fannie Mae or Freddie Mac owns or guarantees your home mortgage:
- Fannie Mae: (800) 7FANNIE or www.fanniemae.com/loanlookup.
- Freddie Mac: (800) FREDDIE or www.Freddiemac.com/mymortgage.
What if your mortgage is held by a private lender? Many of the largest banks have a greed to participate in loan modifications, but lender participation is voluntary, and they have the ability to change the details of the loan program. Basically, this means the major banks can use these terms as guidelines, but don’t have to follow them to the letter. This makes it even more important to verify the details of your mortgage, and not rely 100% on what you read on the news. Always verify loan details before signing on the dotted line.
Shop for lower mortgage rates. If you believe you are eligible for the updated Home Affordable Refinance Program, you should contact your lender and ask them how they can help you refinance your mortgage. It also helps to shop around and compare mortgage rates so you have a good idea of what your options are.
Source: Federal Housing Finance Agency.