HARP mortgage has been known as many different names including the Obama mortgage, DU Refi, Refi Plus, and Making Home Affordable. The gist behind any of these names is the same: to make the mortgage more affordable for the homeowner. The program is for homeowners that are underwater on their mortgage, meaning that they owe more than the home is worth and has no maximum loan-to-value ratio and is eligible on any primary residence, investment, or second home. The goal behind the program is to help or reward those homeowners that were responsible enough to keep going on their monthly payments even when the going got tough by providing them with the ability to refinance into a lower rate, more stable program, or even reducing their loan’s amortization period. It is important to note that this program is NOT for borrowers that have been late on their mortgage payments or are close to foreclosure. The program for the struggling homeowners is the Home Modification Program. As it stands right now, HARP is set to expire on December 16, 2016.
Who is Eligible?
There are a few quick eligibility guidelines that will help you know right away if the HARP mortgage is right for you or not.
- Your loan must currently be backed by either Fannie Mae or Freddie Mac. There are several ways for you to find this out: you can use the online lookup tool for both companies or you can ask your current mortgage holder.
- Your loan must have been closed on before May 31, 2009.
- You cannot have refinanced under HARP previously.
- Your payments must be current as of the date of the application and the previous six months. You cannot have more than one late payment in the last 12 months (months 7-12) as well.
These criteria will help you determine if you are eligible to apply for the HARP mortgage. It does not mean that you will have an instant approval, but it is a good start.
Loan to Value Maximums
The loan-to-value ratio for a HARP mortgage depends on one thing – if it is a fixed rate or adjustable mortgage. If you are refinancing into a fixed rate mortgage, there is no maximum LTV. If you are refinancing into an ARM, the LTV cannot be greater than 105%.
If you have a second lien on the home, the junior lender will need to agree to continue to take 2nd lien position in order for you to be eligible to refinance under HARP. If you are refinancing into a fixed loan, the 2nd loan will not play a factor in your eligibility with the exception of your debt-to-income ratio, which helps to determine what you can afford. It is important to note that you will not be able to refinance any portion of your second lien into the 1st loan being refinanced with HARP.
Obtaining a More Stable Program
One of the benefits of the HARP mortgage program is the ability to get into a more stable program. This means that the new program will help you pay the loan down faster or it provides a lower risk for you. Below are a few examples of unstable programs:
- An interest only loan is considered unstable because you pay strictly interest for a specified period, typically 10 years. After those 10 years, you start to pay principal and interest, but you lost that first 10 years when payments could have been made to the principal to pay it down faster.
- An adjustable rate mortgage (ARM) typically adjusts after a few years. Those first few years might have been nice and affordable, but when that interest rate rises, payment shock can set in and difficulty making the payments might occur.
- A 30-year mortgage, even if it is a fixed rate, takes longer to pay down than a loan with a lower amortization rate. In addition, shorter loans usually offer lower interest rates making it easier to pay down more principal.
Examples of more stable programs are as follows:
- A 30-year fixed program is considered more stable than an interest only or ARM loan because it offers a fixed payment for the life of the loan and fully amortizes, which means you are paying principal and interest right from the start.
- A shorter term, such as a 15 or 20-year term is more stable than a 30-year term because it pays the mortgage down faster.
As with most mortgage programs, the government sets their guidelines and then the lenders set additional guidelines that make the ability to get the loan a little stricter. This is not meant to deter people from obtaining the HARP mortgage, but is a way for the lender to protect themselves since they are the ones funding the money and offering the loan. A few of the most common investor overlays on this program include:
- No late payments in the last year, despite the HARP guidelines stating that one late can be had within the last 12 months, as long as it was not in the last six months, but many lenders do not want to take that chance.
- Some lenders only allow a maximum LTV of 150% even though the HARP guidelines allow for no maximum LTV.
- Most lenders will require an appraisal even though it is not stated in the HARP guidelines.
- Most lenders require a minimum credit score of 640 even though there is no minimum requirement for HARP.
As with any loan, income will need to be verified for a HARP mortgage. The documentation typically required includes:
- 2 years’ worth of W-2s and your last 2 months pay stubs
- If you are self-employed, you will need to provide the last two years’ tax returns
- If you have non-employment income (capital gains, social security, etc.) you will need to provide 12 months’ work of bank statements to show receipt of the income on a regular basis
One unique aspect of a HARP mortgage is the lack of need to calculate a debt-to-income ratio for the loan. If you are able to provide proof of 12 months of reserves that equal the amount of your principal, interest, taxes, and insurance for a year, then you do not need your DTI calculated. As stated above, however, many lenders will still require proof of the income and the calculation of the DTI for their own purposes.
Determining the Savings
The idea behind the HARP mortgage is to save you money every month. Of course, if you are changing programs, your payment might go up. If it goes up more than 20 percent, certain precautions need to be taken. In order to calculate how much different your new mortgage payment will be compared to the current payment, the lender has a few options:
- If you are on a fixed rate loan, the current payment as is stated on your Note is used to determine if you are changing your payment more than 20%.
- If you are on an ARM, the current rate that is being used, whether initial or adjusted rate, is used to determine the change in payment.
- If there are several payment options on your Note, the lowest payment option is used for calculation purposes.
Net Tangible Benefit
The reason behind HARP is to make the mortgage easier to afford and/or more stable for borrowers. With that being said, getting a HARP mortgage requires you to meet a net tangible benefit requirement. Basically, you must benefit financially from the refinance. This can occur in a variety of ways, including:
- Decreasing your term, saving you money over the years
- Decreasing your interest rate
- Lowering your payment
- Putting you in a more stable program, such as an ARM to a fixed rate mortgage
You need to meet at least one of these requirements. The only time that you would generally meet just one is if everything is staying the same (your interest rate, term, and payment) but you are moving to a more stable product. This poses less risk to you and the lender in the future and is considered a benefit.
Cash Out Requirements
Whether your loan is backed by Fannie Mae or Freddie Mac, the cash-out requirements are the same. No cash out over $250 can be taken out of the equity of the home. The only exception to this rule is if you prepaid any of your closing costs and you are now rolling the closing costs into the loan. The cash back you can receive in this situation is equal to whatever closing costs you paid, plus the $250 maximum.
The closing costs on a HARP mortgage are similar to those on any other Fannie Mae or Freddie Mac loan. You will pay costs like:
- Underwriting fees
- Origination fees
- Appraisal fees
- Attorney fees
- Title fees
- Document fees
- Credit report fees
Not every fee will apply to your situation; it depends on what the lender you are using requires to be done. For example, if you do not need an appraisal, you will obviously not pay an appraisal fee.
The closing costs can be rolled into your HARP mortgage. If your loan is backed by Fannie Mae, you are eligible to roll up to 4% of the loan amount of closing costs into the loan. If your loan is backed by Freddie Mac, you are eligible to roll either 4% of the loan amount in closing costs into the loan or $5,000, whichever is less.
Type of Loan
HARP offers a variety of different types of mortgage options including:
- Fixed rate mortgages with varying terms (15, 20, or 30)
- ARM loans with varying adjustment periods (5, 7 or 10)
The only borrowers that will be eligible to receive an ARM loan, however, are those that currently have an ARM. You cannot refinance from a fixed rate mortgage into an ARM. If you have an ARM that is adjusting soon, refinancing into another ARM with a lower rate will help you to keep your payments more affordable. If you are taking an ARM loan, however, your LTV is maximized at 105%.
Mortgage insurance works a little differently on a HARP mortgage than it does on any other program. If you do not currently pay private mortgage insurance, it will not be required on your new loan, despite the loan-to-value ratio. On the other hand, if you pay PMI on your current loan, you will not be able to eliminate it by refinancing with HARP. The PMI will be transferred from your current loan to the new loan. It is important to note, however, that not all lenders are okay with doing this – if you run into a lender that will not transfer PMI, then find a lender that will; there are plenty out there that are okay with it.
Not every HARP mortgage will require an appraisal according to Fannie Mae or Freddie Mac. If the loan goes through their automated system and meets certain requirements, which are determined by a calculation completed by the computer, then an appraisal waiver might be obtained. This usually occurs when the value input by the lender meets the values that are compiled from the surrounding areas by the automated underwriting program. Because of investor overlays, however, most lenders require an appraisal even if the automated system provides a waiver.
The maximum loan amount for a HARP mortgage is similar to the maximums for a standard, conforming, Fannie Mae or Freddie Mac loan. For a standard 1-unit property, the maximum loan amount is $417,000 and for a jumbo loan, the maximum is $625,500.The limits go up with the addition of more units and are as follows:
- 2 unit property – standard max $533,850 and jumbo max $800,775
- 3 unit property – standard max $645,300 and jumbo max $967,950
- 4 unit property – standard max $801,950 and jumbo max 1,202,925
Finding a Lender
Many people mistakenly think that they need to obtain the HARP mortgage from their current lender, but this is not the case. In fact, your current lender might strictly be the loan servicer. This means that they process the payments, but they don’t own the mortgage itself. As long as you have confirmation that your loan is owned or backed by Fannie Mae or Freddie Mac, you are free to go to any lender that is offering a HARP mortgage program.Click to See the Latest Mortgage Rates»