The Home Affordable Refinance Programwas a federal program designed to help homeowners refinance an underwater mortgage. But homeowners had to say goodbye to HARP as of December 31, 2018.
Let’s take a closer look at HARP and who it was intended for. We’ll also show you a few current HARP alternatives that you can use to refinance if you’re underwater on your loan.
What Was The Home Affordability Refinance Program?
Before we do a deep dive into HARP details, let’s talk about underwater mortgages.
Here’s how you might end up with an underwater mortgage: You buy a home worth $200,000. You make a $20,000 down payment and finance the remaining $180,000 with a mortgage loan. Then the economy tanks and another recession settles in. Home values plummet, and the home that you owe $180,000 on is now worth $150,000. You now have what mortgage lenders call an underwater mortgage, which simply means that you owe more money on your home than your home is worth. Some lenders also call this an upside-down mortgage.
Now, let’s say that your lender offers a lower interest rate or you’re starting to have trouble making your monthly mortgage payments. A refinance can help you adjust your payments each month. This can make your mortgage easier to handle and save you thousands of dollars over the life of the loan. However, your mortgage lender can’t refinance your loan because you owe more money than your home is worth. This leaves you with four options:
- Continue to make payments on your home and hope property values increase.
- Attempt to sell your home for what you owe on your loan.
- Foreclose on your loan.
- Attempt to work with your lender to coordinate a short sale.
This is the situation that many homeowners found themselves in after the Great Recession of 2008. Plummeting property values meant that many homeowners were paying on mortgages that were underwater. HARP gave homeowners an option to refinance their underwater mortgages. HARP also allowed homeowners to refinance with low equity and avoid paying for private mortgage insurance.
Originally, only homeowners who had a loan-to-value ratio of up to 105% could qualify for HARP. But later that year, the Federal Housing Finance Agency extended the program to include homeowners with LTV ratios of up to 125% with no PMI. HARP eliminated the appraisal requirement in many cases and opened the program to anyone with an LTV ratio of over 80%.
HARP was originally scheduled to end on December 31, 2016 but received two additional extensions. Lenders such as Quicken Loans® were allowing refinances of up to 200% of the home’s value on mortgages owned by Fannie Mae and Freddie Mac. HARP failed to get another extension as property values recovered from the recession and the program ended on December 31, 2018.
The HARP Alternatives For Refinancing
HARP is no longer available but there are a few options that you can use to refinance an underwater mortgage. Let’s look at a few of them now.
Relief Refinance Program And High LTV Refi Options
The Relief Refinance Program is a replacement program instituted by mortgage investor Freddie Mac to fill the HARP gap. Relief Refinances are available even if you’re underwater on your loan due to dropping property values. A Relief Refinance can potentially help you:
- Reduce your mortgage interest rate if market rates are lower now than when you got your loan.
- Switch from an adjustable rate mortgage, balloon mortgage or interest-only mortgage to a fixed-rate loan.
- Reduce your monthly mortgage payment by extending your loan term.
- Own your home faster and pay less in interest by shortening your mortgage term.
Not everyone qualifies for a Relief Refinance Program. You must meet all the following criteria:
- Freddie Mac must own your loan. If you aren’t sure which entity owns your loan, you can use Freddie Mac’s loan lookup tool to find out.
- You must be current on your mortgage payments. This means no 30-day late payments in the 6 months leading up to closing. You can only have one payment that’s 30 days late in the past year.
- You may not have used HARP to refinance your loan in the past.
- There must be at least 15 months between the note date of your original mortgage and the note date of your Relief Refinance.
- Your note date of your refinance must be on or after October 1, 2017.
Contact one of our Home Loan Experts if you think you qualify for a Relief Refinance. They will help guide you through the application process.
The Relief Refinance Program is only available for homeowners who have mortgages owned by Freddie Mac. But what if Fannie Mae owns your loan?
Fannie’s version of the Relief Refinance Program is the High Loan-to-Value Refinance. Like a Relief Refinance, a High LTV Refinance can allow you to change your loan’s term or sign on a lower interest rate even if you’re underwater. You can also move from an adjustable rate mortgage to a fixed-mortgage rate.
You must meet all the following minimum criteria to qualify for a High LTV Refinance:
- Fannie Mae must own your loan. You can check and see if Fannie owns your loan by using Fannie Mae’s search feature.
- The note date of your refinance must be on or after October 1, 2017.
- You must not have refinanced your mortgage with HARP.
- There must be at least 15 months between the note date of your original mortgage and the note date of your High LTV Refinance.
- You must be current on your mortgage payments. This means that you cannot have any missed payments in the last 6 months and no more than one 30-day late payment in the past 12 months.
One of our Home Loan Experts will be able to walk you through the process if you think you might qualify for a High LTV Refinance.
An FHA Streamline refinance can help you refinance an FHA loan without an appraisal. This means that you could owe twice the value of your home (or more) and still take advantage of a lower interest rate or a longer term. FHA Streamlines get their name from their faster, simpler application process. In addition to an appraisal waiver, in some cases, you can also get an FHA Streamline with no employment verification.
To qualify for an FHA Streamline, you must meet the following criteria:
- You must already have an FHA loan. While it is possible to refinance a conventional loan to an FHA loan, this is not available with the Streamline option.
- You must be up to date on your mortgage loan with no missed or late payments in the last 6 months and only one 30-day late payment in the last year.
- There must be at least 210 days between the date of the first payment on your current FHA loan and the date you close on your Streamline refinance. You must have made at least 6 months’ worth of payments on your current loan prior to applying.
- Your loan must have a tangible net benefit. You can accomplish this in several ways, ranging from a lower monthly payment to a lower interest rate. You cannot get a cash-out refinance with an FHA Streamline, even if your loan isn’t underwater.
Those currently in a VA loan may qualify for a VA interest rate reduction refinance loan. Like an FHA streamline refinance, in some cases, you can get a VA IRRRL with no appraisal. You can refinance up to 120% of your loan’s value with a VA IRRRL, which means that it can be a great option if you’re underwater on your mortgage.
All the following must be true to qualify for a VA IRRRL:
- You already have a VA loan to refinance.
- You currently live in the home that you’re refinancing and you plan to continue living there.
- You only plan to refinance your rate or term. You cannot get a cash-out refinance with a VA IRRRL.
- You’ve made at least 6 consecutive on-time payments on your loan.
- There have been at least 270 days since the date you closed on your existing VA loan and the date you apply for your VA IRRRL. You may also qualify if it’s been at least 180 days after the first scheduled payment on your current VA loan.
Keep in mind that though there is no minimum credit score to qualify for a VA IRRRL, lenders often set their own standards. You must have a median FICO®Score of at least 620 at Quicken Loans, for example. You should also remember that not every lender that offers VA loans also offers VA IRRRLs.
Do you owe more money on your mortgage loan than your home is worth? If so, you have an underwater mortgage. You typically cannot refinance an underwater loan because lenders can’t give you more money than your home is worth. The Home Affordable Refinance Program was a federal program that allowed homeowners to refinance underwater mortgages. This was a major benefit for homeowners who bought property before the housing bubble burst in 2008.
HARP is no longer available but there are other ways that you can refinance an underwater mortgage. If you have a loan backed by Freddie Mac or Fannie Mae, you may use a Relief Refinance or a High LTV Refinance, respectively. Underwater refinance options are also available for homeowners with a VA loan or an FHA loan. It’s important to remember that you can only refinance your mortgage rate or term with these options. You cannot get a cash-out refinance if your loan is underwater.
If you would like to go over your options, you can get started online with Rocket Mortgage® by Quicken Loans.
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