Monday, 12 September 2016

The financial crisis took a whack at housing prices, leaving many to watch their home's value plummet to less than what they owed on it. It's been a long recovery time, and some homes are still considered "underwater."

Fortunately HARP, the government's Home Affordable Refinance Program, can help homeowners refinance their mortgages—even if they owe more than the home's market value. HARP is based on market rates, and the program expires on Dec. 31, 2016.

How do I know I'm eligible?

Jens Lovell, executive vice president, Mortgage Lending at BBVA Compass, says most HARP-eligible customers know who they are. "If you're upside-down on your home because you purchased it pre-2009," says Lovell, "you've got an outlet through HARP."

Current eligibility requirements include:

  • The mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac. You can find out about your own loan by calling or visiting the websites.
  • The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
  • The mortgage cannot have been refinanced under HARP previously unless it's a Fannie Mae loan that was refinanced under HARP from March to May, 2009.
  • The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months.
  • The borrower must have a reasonable ability to pay the new mortgage payments.
  • The condition that the refinance improves the long-term affordability or stability of your loan.

What information do I need?

In the past, HARP applications were difficult and required great details. Thankfully, a retooling of the program called HARP 2.0, has made it simpler. To apply, you'll need to provide:

  • The monthly gross (before tax) income of all the homeowners on your loan, including recent pay stubs if you receive them, or documentation of income you receive from other sources.
  • Your most recent income tax return.
  • Information about any junior lien mortgage on the house.
  • Account balances and minimum monthly payments due on all of your credit cards.
  • Account balances and monthly payments on all your other debts.

Using HARP to your advantage

When you successfully refinance a typical 30-year loan with HARP, you'll have lower monthly payments. But there's a way to pay even less on interest by converting to a shorter-term loan. According to HARP, a homeowner who currently owes $200,000 with an interest rate of 6.5 percent is paying a monthly payment of $1,264. If the house is worth $160,000, the homeowner has a current loan-to-value (LTV) ratio of 125 percent.

30-year loan scenario: If this borrower refinanced into a 30-year fixed-rate mortgage with an interest rate of 4.5 percent, the monthly payment would decline to $1,013. But by refinancing into a 30-year loan, the borrower's loan balance will not reach $160,000 for ten years.

20-year loan scenario: If the borrower chose a 20-year loan term at a rate of 4.25 percent (mortgage rates tend to be less for shorter term mortgages), the monthly payment would be $1,238 ($26 less than the borrower currently pays) and the borrower's loan balance would reach $160,000 in 5.5 years.

15-year loan scenario: If this same borrower refinanced into a 15-year mortgage assuming an interest rate of 3.75 percent, the monthly payment would be $1,454 ($190 more than the current payment), but the loan balance would be below $160,000 in about 3.5 years.

How to get started

Apply for a refinance as you normally would, through a bank or mortgage broker. You can compare your good faith estimate and truth in lending estimate, and compare those to your current terms to make sure it's an improvement.

To learn more, visit the HARP website or consult your lender.

Next: How Does A Home Equity Line Of Credit Work? >