HARP 2.0 - What You Need to Know

If your home is underwater, meaning you owe more on it than it is worth, you still may be able to refinance to today's low interest rates.  The Home Affordable Refinance Program (HARP) allows those homeowners with mortgages that are owned by Fannie Mae or Freddie Mac the ability to refinance without regard to the value of the property.

So the first step is to check if your loan is owned by one of the 2 government mortgage agencies.  Check here - Fannie Mae & here - Freddie Mac.

Supposedly, there are over 4 million homeowners with either Freddie Mac or Fannie Mae loans that exceed the value of their homes.  There are approximately an additional 7 million homeowners with underwater mortgages.  Unfortunately for them, HARP loans don't work.  Recently, President Obama proposed a similar plan for those homeowners but nothing has become of that yet.

One difficulty with the HARP program is that some lenders are not applying all of the benefits of the program.  For example, I've heard that Quicken Loans & New Penn are sticking with the original HARP requirement that mortgages cannot exceed 125% of the value of the home.  These extra layers of underwriting restrictions are called "overlays".  It means that you need to shop for more than just rates when you are speaking to mortgage companies.

But before you begin shopping for a HARP loan, make sure you are able to meet these additional requirements.

As previously stated, with HARP 2.0 loans and with most lenders, the value of your home is not considered.  But you must ask about it since some lenders still put a 125% limitation on the amount of the loan.

You must be current on your home loan when you apply.  You can have 1 30 day late within the past 12 months but none within the past 6.

If you have a very high debt to income ratio you should apply with your current lender.  Your current lender may approve your loan even if your debt to income ratio exceeds 45%.  Most other lenders will limit you to 45%.  To calculate your debt to income ratio, you need to add your proposed new monthly mortgage payment including taxes and insurances to all your other monthly debt obligations (basically, what shows up on your credit report).  This figure should be 45% or less.  If it is higher, you may have no other choice than to apply with your current lender.

Your current loan had to be sold to Freddie Mac or Fannie Mae prior to May 31, 2009.

While a few lenders will approve loans with credit scores below 620, most will not.  Check your scores at www.AnnualCreditReport.com.

This must be your first HARP refinance.

Finally, one of the following 4 benefits must be obtained by refinancing with a HARP loan:

• Your monthly payment is being lowered
• Changing from a an adjustable-rate mortgage to a fixed-rate mortgage
• Reducing the interest rate
• Reducing the loan amortization

HARP 2.0 Enhancements

Besides the value restrictions being eliminated, HARP 2.0 had a few more major improvements:

Lenders will not be required to buy back loans that default after a HARP refinance.  This means that lenders can be more aggressive with their underwriting requirements.

Your home no longer needs to be your primary residence.  Vacation and investment homes are now eligible.

Condominium requirements have been relaxed.  HARP 1.0 had this requirement that no more than 10% of units in the complex be owned by one person and also that no more than 20% of the condo owners were delinquent on their HOA dues. These requirements have been waived.

Fannie Mae and Freddie Mac fees have been cut making your final rate and closing costs lower.

A previous foreclosure or bankruptcy will not disqualify you.

All in all, these are some very aggressive new lending policies.  I hope that if you are underwater and have not yet been able to refinance, that these new guidelines will help you.  If you still have questions, you may speak to me directly by calling 347-RON-BORG