The Home Affordable Refinance Program has helped millions reduce their monthly mortgage payment, even though they may have owed more on their mortgage than the home was currently worth. Traditionally, a conventional refinance is allowed as long as the home owner has at least 10 percent equity in the property at the closing table. This means if the home is appraised at $250,000 the amount refinance can be no greater than 90 percent of that amount, or $225,000. Without this equity position, a conventional refinance isn’t possible. That is until the introduction of HARP and HARP 2.0.
The original HARP was introduced in 2009 and addressed valuation issues millions of homeowners faced when trying to refinance a conventional mortgage. As property values fell, owners were “upside down” and couldn’t take advantage of lower interest rates. Seeing this problem, Congress introduced HARP and while this helped, millions more still couldn’t refinance because they owed more than 125 percent of the current value of the property. HARP 2.0 addressed this valuation issue by eliminating the need for an appraisal altogether. What do you need to know about HARP 2.0?
First, your mortgage must be owned by either Fannie Mae or Freddie Mac and both have portals on their websites that allow you to determine whether or not your mortgage is owned by either entity. Second, your loan must have been funded before June 1, 2009 which attempts to address the properties most affected by home value downturns of the last decade.
While there is no need for an appraisal there are still some additional requirements. Most lenders do not require a minimum credit score for a HARP 2.0 refinance but lenders do need to verify there are no more than one 30 day late payment within the previous 12 months and must be current on the loan at the time of closing. There can be no late payments made within the past six months. There is no requirement that you must use the same lender to refinance using HARP 2.0, you can choose any lender that offers conventional mortgages. If there is a second mortgage on the property, you will need to have the current second lien lender subordinate to the new loan. This is something your new lender can help you with. You can also roll your closing costs into the new HARP 2.0 loan as well but you can’t take out any cash at the closing table.
Most HARP 2.0 refinance loans switch from a higher fixed rate to a lower one or refinance out of an ARM to a fixed rate mortgage. Most all loan programs are offered with HARP 2.0 including fixed, hybrid and adjustable and the loan can be used on a primary residence, a second or vacation home or a rental property as long as the property meets existing guidelines.
Many of today’s HARP 2.0 borrowers were originally turned down with the first HARP program, but after specific adjustments were made, primarily waiving the appraisal requirement, the program really began to take off. It’s important to note that individual lenders can add their own internal lending guidelines but they must all follow the basic HARP 2.0 rules. If you think a HARP 2.0 loan in in your future, it’s time to pick up the phone and call your loan officer.