Wednesday, May 23, 2012

HARP and Other Home Refinancing Options

HARP and Other Home Refinancing Options
The housing bubble of 2008 placed many homeowners in an underwater position where mortgage balances greatly exceeded a home’s actual market value. In response to these conditions, the federal government started the Home Affordable Refinance Program, or HARP.

And while HARP provides a convenient option for homeowners stuck with underwater mortgages, some homeowners may not be eligible for the program. Fortunately, there are other refinancing options available for those who don’t qualify for the Home Affordable Refinance Program.

HARP Refinancing

Homeowners unable to obtain financing due to a drop in home value may want to consider the HARP as a refinancing option. The effects of the housing bubble and resulting drops in home value left many homeowners paying considerably more in mortgage payments than before. This happened in cases where mortgage contract terms involved interest-only payment options or balloon payment arrangements.

The Home Affordable Refinance Program is designed to make mortgage payments more affordable while setting homeowners up in stable mortgage contracts. Refinancing through HARP involves an application process and underwriting review process. Applicants must also pay refinancing fees.

In order to qualify for HARP refinancing, applicants must meet the following requirements –
· Homeowners must be current on their mortgage payments and show a 12 month history of timely payments made
· Existing mortgages must be underwritten through Fannie Mae or Freddie Mac
· Existing mortgages must have been sold no later than May 31, 2009
· HARP requires a loan-to-value (amount owed vs. actual market value) ratio of 80 percent or more.

HAMP Options

The federal government offers the Home Affordable Modification Program, or HAMP as an alternative financing option for homeowners with underwater mortgages. Homeowners who have missed payments on their mortgage due to a financial hardship may qualify for HAMP assistance. Much like with HARP requirements, a person’s current mortgage must be held by Fannie Mae, Freddie Mac or any other U. S. Treasury-sponsored lenders.

In order to qualify for HAMP refinancing, homeowners must meet the following requirements –
· Current monthly payment amounts must exceed 31 percent of the homeowners gross income
· Applicants must provide proof of financial hardship
· The home must be the primary residence
· The total amount owed on a mortgage must be less than $729,750

Lenders can offer several different modification plans depending on a person’s financial situation. In most cases, a HAMP agreement includes a 90 day trial period. After the 90 days, lenders reassess the homeowner’s’ situation to see if other long-term modification arrangements are warranted.

FHA Refinancing Options

FHA refinancing options may come in handy for homeowners who can’t qualify for HARP refinancing because they’ve built up considerable equity in their home. Homeowners with existing FHA- or VA-backed mortgages loans can easily qualify for FHA financing provided they are current on their monthly mortgage payments.

The FHA actually has a streamlining process that allows homeowners with existing FHA or VA mortgages to qualify for refinancing without going through the usual credit score checks, appraisal process or proof of employment requirement. Borrowers can qualify for FHA refinancing as long as they have remained current on their mortgage payments for the past 6 months, with a limit of one late payment within the past 12 months.

With FHA loans, homeowners can finance as much as 96.5 percent of the existing mortgage amount. Lenders also lump the mortgage insurance premium costs in with the total loan amount. So, an FHA refinance can convert a mortgage with 20 years left to pay into a new 30-year loan. By doing so, homeowners can considerably lower their existing interest rates.


When comparing HARP versus HAMP options, the terms of a HAMP mortgage agreement are actually a modification on an existing mortgage and not an actual refinancing arrangement. A HAMP loan modification lowers the monthly mortgage payment for the first five years of the loan. As of the sixth year, the mortgage interest rate increases by up to one percentage point per year. Once the mortgage interest rate reaches the market rate at the time when the agreement was prepared, the mortgage payment amount levels off for the remainder of the loan period.

Homeowners considering the FHA refinancing option may want to pay particular attention to how the upfront fees and mortgage insurance costs affect the total mortgage loan amount. In some cases, borrowers may end up paying more in interest costs by refinancing than sticking with the terms of their existing mortgage.

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