Treasury's Home Affordable Refinance Program: Why and How it Helps

Posted by  on Jan 25, 2010

Conventional mortgage lenders typically don't refinance for loan amounts of more than 80% of a home's current value. What can you do if you don't have enough equity for refinancing after a drop in your home's value? You may qualify for assistance through the federal government's Home Affordable Refinance Program (HARP) if your mortgage loan is owned or guaranteed by Fannie Mae or Freddie Mac. Here's how the program works and its potential benefits.

Home Affordable Refinance: More than Lower Payments

As mortgage rates hover near record lows, frustrated homeowners continue paying above-market mortgage rates because they don't have enough equity for refinancing under conventional mortgage refinance requirements. In addition to lowering mortgage rates, a HARP refinance can help:

  • Convert from adjustable-rate mortgage (ARM) to fixed-rate mortgage (FRM). Stabilize your monthly principal and interest payment (P&I) by refinancing to an FRM.
  • Eliminate exotic mortgage features. If your current mortgage loan allows for interest-only payments or deferred interest payments, refinancing to a low-rate FRM can help you pay off your mortgage faster while reducing the risk that you won't be able to make payments after they adjust upward. Negative-amortization mortgage loans allow for adding unpaid amounts to your mortgage balance. Converting these to a fixed-rate mortgage ensures that your mortgage balance will decrease over time rather than increase.
  • Rebuild home equity. If you owe more on your mortgage than your home is worth,you have negative home equity. By refinancing to a fixed-rate mortgage at a lower interest rate, you can increase your chances of rebuilding home equity.

If you're concerned about one or more of these situations, check your eligibility for a HARP refinance mortgage. It's possible to refinance up to 125% of your home's current value through this program.

Refinancing with More than One Home Loan

If you have more than one mortgage, such as home equity financing in addition to your primary mortgage, it doesn't mean that you cannot refinance using HARP. You may be eligible if you meet these requirements:

  • Your primary mortgage balance does not exceed 125% of your home's current value.
  • Your home equity lender agrees to subordinate its interest to your new refinance mortgage.
  • You can document your ability to afford making payments on both the first and second mortgage loans.

Refinance Approval: Before You Begin

Mortgage lenders approve HARP refinance mortgage loans according to specific criteria. Before calling your lender or a housing counselor, have this information handy:

  1. Your mortgage loan account number and current mortgage account statement.
  2. Documentation of monthly gross income before taxes. This may include copies of recent bank statements, payroll deposit advices, or check stubs.
  3. Full copy of most recent income tax returns.
  4. Account balances and minimum payments for credit card debt.
  5. Account balances and monthly payments for auto loans and education loans.
  6. If applicable, information about home equity loans and/or lines of credit, including balance and payment amounts.

Starting Your HARP Refinance

With the above documents in hand, go through these steps to start the HARP refinance process. Follow your mortgage lender's instructions carefully and ask questions to clarify instructions, requirements, and timelines.

  1. Determine your home's current value. Contact local real estate professionals who can arrange to have your home's value appraised.
  2. Calculate loan-to-value (LTV) ratio. Estimate your current LTV ratio by dividing your mortgage balance by your home's current value. For instance, if your mortgage balance is $220,000 and your home is worth $250,000, your LTV is 88%.
  3. Complete the HARP eligibility screening. These initial screening questions determine basic eligibility for a HARP refinance mortgage. Your mortgage company determines actual eligibility based on individual circumstances.
  4. Request a HARP refinance from your mortgage company. Ask to speak with a loan servicing representative. If your mortgage company doesn't offer assistance, don't give up--be politely persistent.

This preparation strategy should help you get a HARP refinance mortgage--and take advantage of refinance rates--and can help minimize delays. If your mortgage lender doesn't help or is dragging their feet, you can get help in determining your options by contacting a HUD-approved housing counseling agency.


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