Image courtesy of Flickr, Liz West
HARP helps homeowners with high loan-to-value (LTV) ratios, unable to refinance their mortgage loan as a result to lower their mortgage payments easily.
The housing market financially harmed many home buyers several years ago, and unfortunately what buyers paid for a house then is likely less valuable in today's market. If you find yourself trying to refinance and you can't get a loan due to your home's value being less than what you owe on the mortgage, the Home Affordable Refinance Program (HARP) was created for people who have found themselves dealing with this particular issue.
HARP has a few limitations, even though it is widely available to most buyers:
1. Must have a Freddie Mac or Fannie Mae mortgage
2. Must be the first time you refinance through HARP
The only exception to the rule is if you refinanced prior to May 31, 2009 using Fannie Mae.
3. Must have a Loan-to-Value Ratio over 80%
You can only sign up for a HARP loan if you owe more than 80% of what the home is worth. This percentage is the loan-to-value ratio (LTV).
4. Must have a qualified Credit Score
You must have a credit score that is good enough to qualify for a typical mortgage. In most cases, a credit score of 680 and higher should be sufficient enough to qualify you.
5. Must be current on your payments
You must have a good payment history for the last 12 months. The most important factor is that you haven't been more than 30 days late on your mortgage within the previous year.
1. Obtain your latest credit scores
Some websites like annualcreditreport.com offer a free credit score each year. You are legally allowed one free credit report every year by each of the three credit bureaus. Determine your eligibility and save yourself time by running your report before you talk to lenders. Each lender requires different credit scores, but if your middle score is at least 680, you can usually lower your interest rate.
2. Gather all of the information that will be required
Refer to our "Mortgage Application Checklist" article to see what information lenders will need to complete your application, and out " What Documents Are Required for a Home Loan?" article to see what documentation you should gather as well. Preparing ahead of time ensures that your mortgage approval process will be quick, with significantly fewer delays.
3. Call your current mortgage company
See what rate and terms would be available to you for a HARP refinance through your current lender. Keep in mind that your lender may not have the best rates available.
4. Shop around with three lenders before you choose one
Refer to our "How to Choose a Mortgage Lender" article for some in depth insight to help with your search. Finding a lender who is offering you an interest rate that is a fraction of a percent lower than the others and who charges you less in fees can substantially reduce your monthly payments further that what you would already be saving through the HARP program.
If you find yourself paying too much for your mortgage, or you received a high interest rate on your loan and have a loan-to-value ratio (LTV) that is more than 80%, HARP can you greatly reduce your payments and leave you more satisfied with your loan. HARP is a wonderful option for people who are paying too much for loans they received several years ago when the housing market couldn't offer the advantages that they have now.
Take note, that the HARP program is only available for a limited time. Unless directed by the FHFA, Fannie Mae and Freddie Mac to further extend the HARP program, it is set to expire on December 31st, 2015. There have been no announcements on whether or not there will be an extension to date, so it is important that you take advantage of this opportunity and refinance before the deadline.
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