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HARP 2.0 - Home Affordable Refinance Program

Refinancing, Even for Underwater Mortgages

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The Home Affordable Refinance Program (HARP) is an initiative designed to help homeowners refinance their homes. HARP 2.0 is the second attempt at getting the program off the ground, after limited success on the first attempt. Homeowners were previously only able to refinance with a loan to value ratio of 125% or less.

What Can HARP 2.0 do For Borrowers?

HARP is really about letting homeowners refinance at historically low rates, which can help them save money on housing. With houses deep underwater, many homeowners have been unable to refinance.

Refinancing when rates are low can also help homeowners get into a plain-vanilla mortgage. They might move to shorter term loans without dramatic changes in their monthly payment, they might move into loans that amortize or get paid off (as opposed to interest only loans), or they might move from adjustable rate mortgages (ARMs) to a fixed rate that will stay low for the duration of the loan.

How might this help you? Run the numbers to find out for yourself if there is any benefit to refinancing. You might end up with a lower payment, be able to pay the loan off more quickly, or spend less on interest in the coming years. To get the answers, find out how to calculate loans or let our calculator to do it for you.

Highlights of HARP 2.0

  • It doesn’t matter how far underwater you are -- unlimited loan to value ratios are allowed for refinancing to fixed rate mortgages
  • In most cases appraisals are waived (which keeps closing costs low)
  • If you didn’t have private mortgage insurance (PMI) before, it won’t be added when you refinance under HARP
  • You may be able to remove somebody’s name from a loan (such as an ex-spouse)
  • Bad credit is less important than it would be if you applied for refinancing without using HARP
  • Investment properties and second homes -- as well as your primary residence -- may be refinanced
  • Fees and rates may be lower than they’d be if you refinance on your own (if refinancing is even possible without HARP)
  • Documenting your income and assets may be less burdensome than if you refinanced on your own

    The Reasoning Behind HARP

    Why is the Obama Administration, through the Making Home Affordable program, trying to make it so easy to refinance? The loans are already on the books, so the risk of default is already with Fannie Mae or Freddie Mac. Allowing you to refinance with a lower rate makes it more likely that you’ll repay the loan in full. If you’re stuck in a home with high payments, you're more likely to default on the loan or just walk away.

    Remember that if you qualify for HARP, you’ve been making your payments anyway, so the risk of default only goes down.

    Eligibility Requirements

    To qualify for refinancing under HARP, you must meet the following criteria:

    • Your loan is owned or guaranteed by Fannie Mae or Freddie Mac
    • It was with Fannie or Freddie on or before May 31, 2009
    • Your loan to value ratio is above 80%
    • You are current on your mortgage, and have been making payments for the past year
    You might not know if your loan is part of Fannie Mae or Freddie Mac -- don’t assume it’s not just because you make payments to “Wells Fargo” or any other bank. You make payments to your loan servicer, but the loan’s owner can be a different entity.

    HARP Refinancing Costs

    Refinancing under HARP is similar to refinancing under any other circumstances; there are closing costs involved. You may be able to roll most of those costs into the loan, which means you don’t have to pay out of pocket to refinance, but you’ll end up paying interest on those costs for many years to come. Otherwise, your cost is the interest rate you pay on the loan. If the program works out for you, that rate should be lower than what you’ve been paying.

    Note that a lower monthly payment doesn’t necessarily mean you’re saving money (although it may help you stay afloat for the time being). You really have to run the numbers yourself to be sure. If you increase your loan balance by rolling in closing costs, and you increase the number of years that you’ll pay interest, you might not gain as much as you think.

    Moving Forward with HARP 2.0

    If you’d like to use HARP 2.0 to refinance, talk to a mortgage lender. Your existing lender may be able to handle it, or you may have to look elsewhere. HARP has its own set of rules, but each lender has their own rules -- they may not be willing or able to help you use the program. If you think you’re eligible but your lender says you’re not, try another lender.

    If you have questions, you can always call the Homeowner’s HOPE Hotline at 888-995-HOPE (4673).

    Drawbacks of HARP 2.0

    The Home Affordable Refinancing Program can certainly help you save money on you monthly payments. However, it doesn’t change the fact that your loan is upside-down, and you still have to deal with that reality. It may take years for you to get back to even, and you should evaluate all the alternatives (such as short sales and modifications). If you plan to keep your home for the long term, HARP 2.0 may make sense.

    Before you spend money on closing costs, figure out your exit strategy: how and when do you think you’ll sell your home?

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