There is no question about the fact that our government often gets things wrong. Consider what’s going on with the Veterans Administration and its bungled attempts to build new medical centers for our veterans. Or think about the fact that our Office of Personnel Management allowed hackers to steal the personal information of more than 4.5 million government employees. Then there’s the ongoing flap over Common Core standards.
Fortunately, our government does get some things right and one of them is a little known program that could put anywhere from several hundred dollars to maybe $1000 a month in your pocket. It’s called the Home Affordable Refinance Plan or HARP.
How much would this program save you?
It’s impossible to say how much HARP would save you except that it has saved homeowners that have taken advantage of it an average of $275 a month. Since this is an average it’s clear that that many homeowners saved much more than this. Beyond this the answer to how much you would save will depend on a number of factors.
Before you start thinking what you would do with all the money you would save with a HARP refinance it’s important to determine if you’d be eligible.
Would you be eligible?
The first and most important eligibility requirement for a HARP loan is that your mortgage must be either owned or guaranteed by Freddie Mac or Fannie Mae. If you don’t know the answer to this question both Fannie Mae and Freddie Mac have toll-free telephone numbers you could call. Fannie Mae’s is 1-800-7FANNIE. To reach Freddie Mac call 1-800-FREDDIE. Both of these lines are open from 8:AM to 8:00 PM ET. Both of them also have web submission processes that make it easy to get this information. Just go to either of its websites, enter some information and you will see if either of these agencies owns or guaranteed your loan. However, this is not a guarantee that you will be eligible for a HARP refinance, as you must also meet the other eligibility requirements.
The second of these requirements is that your mortgage must have been sold to either Fannie Mae or Freddie Mac before May 31, 2009. You cannot have refinanced under HARP unless it was a Fannie Mae loan that was refinanced under HARP from March through May 2009. Your current loan-to-value (LTV) ratio must be more than 80%. In addition you must be current on your mortgage at the time that you apply to refinance and have had a good payment history in the past 12 months.
How it works
Assuming you are eligible given the requirements you’ve just read there are three steps to get started on a HARP refinance.
First, you need to gather your financial information. This would include your mortgage statements and information on a second mortgage if applicable. You will also need your income information, which could be your tax return from the previous year or your pay stubs.
The second step is to contact your mortgage company and ask if it’s an approved HARP lender.
It’s best to start with your current lender because it will already have your loan information on file. But you will need to ask it to provide you with whatever information you will need to verify your current income.
If it turns out that your mortgage lender is not a HARP lender you’ll need to find one. You can find lenders that have been approved by HARP by clicking on this link. Call one, tell it that you’d like to finance and would like to see if you would be eligible for a HARP loan.
If a lender says you don’t qualify for one of these loans be sure to ask why. If you still believe you should qualify, ask to speak to the bank’s HARP specialist or talk with a different lender. It won’t hurt to get another opinion.
Finally, you will need to go through the application, approval and closing process. If the lender determines that you qualify for a HARP loan it will guide you through this process.
If you have a second mortgage
You could still be eligible for a HARP refinance if you have a second lien or mortgage on your house. However, your junior lender (the company that has your second mortgage) must agree to remain a junior and you must be able to show that you can meet the payment terms of the new first mortgage.
The answer to this question is simple. You will have a lower interest rate. If not why would you choose to refinance? For a HARP refinance to be attractive you would probably need to have a mortgage interest rate of 6% to 8%. Some lenders are offering fixed interest HARP loans at 2.7% to 3.3%. However, the only way to learn how much lower an interest rate you could get with a HARP loan is to contact your mortgage company or a potential lender, and fill out an application. If it’s not significantly less than your current interest rate don’t bother to refinance.
Do the math
While you could save money with a HARP loan it’s important to do the math. For example, if you have a $125,000 loan at 6.5% interest and got a HARP loan at 5.375% you would only save about $90 a month. And your closing costs would probably be around $3200, which means it would take you almost three years to recoup that $3200. As you can see from this example it would probably not pay to get a HARP loan unless you owed significantly more than $125,000 on your mortgage or could reduce your interest rate substantially.
If you’re underwater or upside down
If you’re underwater – meaning that you owe more on your home then it’s worth – or upside down there is HARP 2.0. It’s designed to help people like you refinance their mortgages. And it’s especially good for people that are unable to find help elsewhere. HARP 2.0 is like HARP but with two key differences. First it will allow you to refinance if you have mortgage insurance and second the new mortgage lender is relieved of the responsibility for anything that happened on your first loan. This is due to the fact that there was massive fraud on the underwriting of many mortgages. If this is what happened to you, the new lender is not responsible. This puts more lenders in position to help.
The eligibility requirements for HARP 2.0 are the same as for the original HARP (as listed above).
Finally, here’s a two-minute video, courtesy of National Debt Relief, with more details about HARP 2.0.