When you can no longer afford your monthly mortgage payments, you have several options. You can sell your house and try to downsize. Or you can find out whether you qualify for a loan modification. You can also try to refinance. If you don’t think you qualify for a refinance loan because you have an underwater mortgage, don’t worry. You may be eligible for a program known as HARP 2.0.
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What Is HARP?
The Home Affordable Refinance Program is a federal initiative that gives homeowners with negative equity the chance to refinance. It was launched back in 2009 when the country was in the midst of the subprime mortgage crisis. Since then, HARP has helped millions of homeowners find their financial footing.
Through HARP, some borrowers have been able to lower their mortgage rates or reduce the length of their loan terms. Others have traded in mortgages with variable interest rates for fixed-rate mortgages that make managing monthly payments less challenging.
HARP offered relief to folks who couldn’t qualify for conventional refinance loans. After the housing bubble burst, many homeowners saw their home prices drop dramatically. And many found themselves with mortgage loan balances that exceeded the value of their homes. Despite the controversy surrounding the program, HARP played an integral role in the economic recovery process by strengthening the housing market.
The government has made multiple changes to HARP over the years. In July 2009, it increased the maximum loan-to-value ratio that homeowners could have from 105% to 125%. A few years later, it introduced HARP 2.0 when it became clear that too many borrowers couldn’t qualify for the original program.
HARP 1.0 vs. HARP 2.0
Unlike HARP 1.0, the updated version of the program has no loan-to-value (LTV) ceiling for individuals with fixed-rate mortgages. So under HARP 2.0, it’s possible to qualify for a refinance loan with a LTV ratio above 125%. If you have an adjustable-rate mortgage, however, you aren’t eligible for the program if your LTV ratio exceeds 105%.
HARP 2.0 streamlines the refinance process by allowing many borrowers to replace their existing mortgage loans without getting an appraisal or going through an underwriting (or income verification) process. Plus, it adjusts or waives some fees for homeowners who want to reduce their loan terms. Specifically, it reduces risk-based fees (called loan level price adjustments) to 0% when loan terms last for less than 21 years and to 0.75% when loan-terms last for at least 21 years (or you have an adjustable-rate mortgage).
The new version of HARP also reduces the amount of documents needed to verify whether applicants meet the program’s income requirements. A borrower may qualify as long as she has enough savings to pay her mortgage for at least a year.
Thanks to HARP 2.0, homeowners no longer have to work with their original lenders. And they may qualify for a refinance even if they have lender-paid mortgage insurance. If you have private mortgage insurance (PMI), you won’t need additional insurance coverage. Furthermore, lenders are off the hook for fraud that took place when original loans were issued.
HARP 2.0 Loan Qualifications
HARP 2.0 is designed for underwater homeowners (and those who are close to being underwater). This means that your loan-to-value ratio must be higher than 80% if you want to qualify for the program. Either Fannie Mae or Freddie Mac must own or guarantee your mortgage and your loan must have been issued (and sold to one of the government-sponsored enterprises) on or before May 31, 2009.
You’re ineligible for HARP 2.0 if you’ve already refinanced through HARP in the past (unless you refinanced a Fannie Mae loan between March and May 2009). You’ll need to be current on your mortgage, meaning that you shouldn’t have made any late payments in the past six months. And in the past year, you shouldn’t have made more than one late payment. Under HARP 1.0, borrowers weren’t eligible if they had at least one late payment in the past 12 months.
While there’s no minimum credit score for HARP 2.0 applicants at the federal level, your lender may have additional requirements. That’s why it’s best to shop around until you find a lender with rates and terms that you’re comfortable with.
What Happened to HARP 3.0?
HARP 3.0 refers to a proposal that could expand the federal refinancing program to include homeowners without loans backed by Freddie Mac or Fannie Mae. It could also lower fees and allow borrowers to refinance through HARP more than once.
Some lawmakers and politicians, including former President Barack Obama, argue that such a program could save borrowers thousands of dollars. But so far, there hasn’t been any progress toward passing a bill that would introduce HARP 3.0.
HARP 2.0 helps financially strapped homeowners refinance. The program is currently set to expire on September 30, 2017. To take advantage of it, you’ll need to find out if your mortgage is backed by Fannie Mae or Freddie Mac. Then, you’ll need to contact your mortgage lender or find someone else who provides refinance loans through HARP 2.0.
Keep in mind that you may qualify for HARP 2.0 even if you’re trying to refinance an investment property or a one-unit vacation home. But be prepared to end up with a higher interest rate. For more information, you can visit harp.gov.
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