Occasionally homeowners find themselves in a situation where the amount they owe on their mortgage is more than the current value of the house. If they sold it for the current market value, they couldn’t get enough money to pay off the mortgage. This is often referred to as being “upside down” on your mortgage.
This can happen if you bought your home at the peak of a hot housing market and then the market cooled off and home values dropped. Through no fault of their own, the homeowner is now stuck with a home they can’t ever sell. This is a common occurrence so the Federal Housing Finance Agency established a program to help. The Home Affordable Refinance Program, HARP, is a bailout program to assist homeowners in this situation.
Suppose someone bought a home for $175,000 and they owe $140,000 on their mortgage. They discover that the current value of the home is $125,000. Their lender would consider them “underwater” by $15,000. Now suppose that the bank will offer to refinance the mortgage at a lower interest rate, but ONLY if they can make up that $15,000 difference.
That is where HARP comes into play. Qualified homeowners can refinance their homes without. Having to pay that $15,000 difference. Some HARP mortgage lenders also allow you to skip the traditional home appraisal and use an automated home value system.
To Qualify for HARP Refinancing a Homeowner:
- Must be current on house payments
- Must be the owner of this property as your primary residence or second home or rental home
- Make sure the loan is owned by Freddie Mac or Fannie Mae
- Originated the loan by May 31, 2009
- Must be sure the loan-to-value ratio is greater than 80%; you can calculate this by using our example. Total owed on the home was $140,000 divided by the current value of $125,000 = LTV ratio of 112%
HARP Refinanced Loans Should Offer at Least One of the Following:
Changing from an adjustable rate mortgage or ARM to a fixed-rate mortgage
- a lower interest rate
- a shorter-term loan
- a lower monthly payment
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