The federalized Home Affordable Refinance Program (HARP loan) is a refinance program that targets underwater homeowners. It was introduced in 2009 and allows mortgage loan borrowers with or without a fraction of the equity to refinance into cheaper home loans without additional insurance. HARP target borrowers with a loan-to-value (LTV) ratio that is equal to or greater than 80% of the value of the home.
While the mortgage crisis has passed, it still affects homeowners and the housing market. For instance, in 2015, about 13% of homeowners were underwater, particularly in the first quarter. When a homeowner is underwater, it simply means that they owe 25% of the home’s value and cannot sell the property for enough to pay off their mortgage. Below, we will highlight what a HARP loan is, its need, and how it works.
What is a HARP Loan?
HARP refinancing is a government program that is specifically meant for those who are underwater in terms of paying their mortgage. It gives them a chance to refinance their homes at a reduced interest rate that is quite affordable compared to other loan types.
Average homeowners save about $179 on a monthly basis if they refinance to a HARP loan instead of another mortgage type. Additionally, they have a chance of lowering their monthly payments. If they are capable of paying larger amounts, they may be able to repay their mortgage more quickly. This allows the homeowner to build up equity in the home quickly.
Over 3.2 million of homeowners have benefited from the HARP program, but estimates suggest that over 600,000 households can still benefit from it. This means the program could help many others in refinancing their mortgages. The qualification criteria have been changed since the program was introduced, and people who seek a HARP loan will not have to undergo as much detailed scrutiny or get an appraisal. This means there’s less paperwork than before. This makes a HARP mortgage refinance a convenient option for homeowners to use.
There have been significant changes to the HARP loan program since it was first introduced in 2009. The requirements are now looser. For example, in 2012, the LTV upper limit was lifted, and appraisals for property requirements were removed under specific terms.
Some warranties and representations were also waived, and some risk fees that borrowers were required to part with were also eliminated, making it a convenient option for more homeowners. Additionally, the date upon which homeowners were eligible was revised from when the loan has been obtained from either Freddie Mac or Fannie Mae to the specific date specified on the note. This was helpful because more people became eligible for HARP refinancing.
HARP is one of the best mortgage refinancing programs as borrowers can refinance faster and within a shorter period of time, so they get to build equity quicker. The interest rates are also lower. By lowering the interest rates, borrowers have less out-of-pocket costs per month. The end result is that the HARP guidelines have been simplified, and more homeowners can now borrow via HARP.
Is There a Need for a HARP Loan?
Before you apply for a HARP loan, it’s important to know what the program can do for you and what is included in this type of mortgage.
How HARP Helps Borrowers
If you have your mortgage through either Freddie Mac or Fannie Mae and your home and the loan amount is greater than the worth of your home, you can benefit from HARP. You will enjoy significant savings in the following aspects:
What Is Included in the HARP Loan?
The HARP loan is beneficial since it doesn’t include underwater limitations. Borrowers can refinance regardless of their mortgages even when the home value has significantly diminished. You don’t need appraisals, which makes the refinancing process much faster and smoother.
The expenses associated with the program have also been modified. Some fees associated with the risk of the mortgage were minimized. That means borrowers don’t have to pay extra fees that were once required. In addition, borrowers do not have to do as much paperwork as the verification process has been significantly simplified. Borrowers can qualify by documenting that they have the funds to make at least a year of mortgage payments. The program’s deadline to apply is December 31, 2018.
How Does a HARP Loan Work?
Before applying for HARP refinancing, you should ensure that you are eligible. First, Fannie Mae or Freddie Mac must have guaranteed the loan. Note that these two entities do not make loans; rather, they guarantee them. This means that even though your payments don’t go to either of these entities, you may be eligible. The HARP website has made it easy for you to find guarantor programs that can be used in your HARP refinancing.
Second, you might still be eligible if you received your loan before the HARP program was introduced. However, if you purchased the home in mid-2009 or later, you aren’t eligible for HARP.
Third, your LTV should exceed 80%. You can calculate this by using the tools provided on the HARP website. In most instances, a high LTV ratio is not necessarily good, but for HARP, it is. In the past, homeowners with an LTV that surpassed 125% were ineligible for HARP refinancing, but that is no longer the case.
Last, you must be current on repaying your loan. If you meet these four conditions, you are eligible to apply for a HARP refinancing.
How to Apply for the HARP Loan
HARP does not loan money but offers borrowers a chance to refinance their mortgage. As such, borrowers should first clarify that the lender offers HARP refinancing and whether they are eligible. Visit the HARP website to verify whether your lender is offering HARP refinancing. We also recommend that you talk to more than one lender so that you can find the best terms for refinancing your loan.
How to Get Started
If you qualify for HARP refinancing, you will go through application, approval, and closing processes. These processes are similar to what you went through when you got your original mortgage. Once you settle on the best HARP lender, they will assist you in the application process.
To complete your HARP refinancing, you will need to follow three basic steps.
First, gather your financial information. You should have basic financial information pertaining to your loan and your repayment status prior to talking with your lender.
Second, call your lender. Ask them whether they support HARP refinancing and whether you could apply for HARP. As you’re their client, they have your loan file. You will have to verify your identity and provide information, such as the source of your income. Tell them you want to use HARP refinancing and ask them if you are eligible.
If the lender says you aren’t eligible, ask them what the reason might be. If you believe that you qualify, you can talk to a HARP specialist or you another lender.
The third step is applying for HARP refinancing and waiting to get approved. Once you’re approved, you will work with the lender to complete the process and recieve your new mortgage.
What You Need to Know
Here are some others things to keep in mind about the HARP program:
HARP is a government-sponsored program primarily designed for helping homeowners who are underwater so that they can refinance their loan payments through favorable terms. It can be used to lower your interest rate and shorten your repayment period.
Over 3.2 million homeowners have benefited from HARP by reducing the amount of their monthly mortgage payment, reducing their interest rate, and building their equity much faster. For you to be eligible, your loan must be guaranteed by either Freddie Mac or Fannie Mae. You also must have taken out your mortgage on or before May 31, 2009, and have a current LTV greater than 80%.
It is important to know that HARP does not lend money but works with lenders to offer HARP refinancing. As such, you should ensure that your lender offers HARP refinancing. Now that you know what a HARP loan is and how it works, you can work with your lender to determine if you can take advantage of everything HARP offers.