Are you a homeowner making consistent mortgage payments but find yourself “underwater,” owing more than your home’s current worth? You’ve likely explored refinancing options to capitalize on lower interest rates, only to be denied by your bank. This situation was common after the 2007-2008 housing market crash. The Home Affordable Refinance Program (HARP) was established by the Federal Housing Finance Agency (FHFA) to address this issue, allowing eligible homeowners to refinance at historically low interest rates and save potentially thousands of dollars annually without additional bank fees. Dave Ramsey even acknowledges HARP as a successful financial bailout program.
Let’s delve into what HARP entails, who qualifies, and its potential benefits for homeowners.
Why Consider Refinancing with HARP?
Imagine purchasing a house for $200,000, putting down $20,000, and starting a mortgage of $180,000 at a 6% interest rate. This seemed reasonable at the time, but the Great Recession significantly impacted home values.
Your $200,000 home, now with a $180,000 mortgage, is suddenly valued at $130,000. Through no fault of your own, you’re now “underwater” or “upside down” on your mortgage.
While your bank offers a lower 4% interest rate that could substantially reduce your monthly payments and accelerate mortgage payoff, they require you to cover the difference between your home’s current value and your outstanding loan balance – a significant $50,000 in this scenario.
This is where HARP steps in. Qualified homeowners can refinance to take advantage of lower interest rates without needing to cover the “underwater” amount. Homeowners who are current on their mortgage payments can potentially save tens of thousands of dollars over the life of their loan through HARP.
Additional Ways HARP Can Save You Money
Beyond lower interest rates, HARP offered additional money-saving benefits during its active period:
Appraisal Bypass
Traditional refinancing involves appraisal fees, but some HARP lenders allowed homeowners to bypass the appraisal process, relying on automated valuation models instead. This reduced upfront costs associated with refinancing.
Transition from Adjustable to Fixed Rates
HARP provided an opportunity to transition from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. Given the unpredictable nature of ARM payments, switching to a stable, lower payment through HARP could significantly reduce the overall mortgage burden.
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Who Was Eligible for HARP?
HARP eligibility requirements varied among mortgage providers, but the general federal guidelines were:
- Current on Mortgage: No late payments exceeding 30 days within the past six months and no more than one in the preceding 12 months.
- Property Type: The home must be a primary residence, a single-unit second home, or a 1- to 4-unit investment property.
- Loan Ownership: The loan must be owned by Freddie Mac or Fannie Mae.
- Loan Origination Date: The loan must have originated on or before May 31, 2009.
- Loan-to-Value (LTV) Ratio: The current LTV ratio must exceed 80%.
Calculating the LTV ratio involves dividing the outstanding mortgage balance by the home’s current value. For example:
| Total Owed on Home: | $180,000 |
|---|---|
| Current Value of Home: | $130,000 |
| LTV Ratio: | 138% |
HARP did not impose an upper limit on the LTV ratio, allowing eligible homeowners to participate regardless of how far “underwater” they were.
Freddie Mac and Fannie Mae mandated that HARP loans provide at least one of the following benefits:
- A more stable mortgage (e.g., transitioning from an ARM).
- A lower interest rate.
- A shorter loan term.
- A reduced monthly principal and interest payment.
The HARP Process
The first step was to contact a lender experienced with HARP. They could determine if your loan was owned by Freddie Mac or Fannie Mae and confirm its eligibility based on the origination date (before May 31, 2009).
Lenders typically required mortgage statements and income verification documents, such as pay stubs or tax documents (W2s).
If you were currently paying private mortgage insurance (PMI), the HARP-backed mortgage would likely require the same insurance, potentially reducing the overall savings from refinancing.
HARP was an opportunity for eligible homeowners to regain control of their mortgages and improve their financial situation. However, it’s important to note that HARP expired on December 31, 2018. This information is provided for historical context and may not reflect current refinancing options. Please consult with a qualified mortgage professional to explore current programs and options available to you.
