As a general rule, lenders won't refinance a mortgage that is underwater (owe more than the home is worth). Even if you have a small amount of home equity, you may not be able to refinance, and certainly won't be able to get very favorable terms on that mortgage. Enter the federal Home Affordability Refinance Program (HARP). This program is designed to help underwater and nearly underwater homeowners refinance into today's lower interest rates. It doesn't forgive any of your loan balance, but it does help you get a lower rate. However, it expires at the end of 2013, so if you're eligible, now's the time.
Eligibility Criteria for Home Affordable Refinance Program
- You can't be behind on your mortgage and have to have made 12 months of on-time payments.
- The mortgage must have been sold to Fannie Mae or Freddie Mac before May 31, 2009.
- Your loan to value MUST be greater than 80%. There is no maximum for fixed mortgages, but if you want an ARM the maximum is 105%.
- You have to be able to reasonably afford the new mortgage (if you're making payments on time on your current mortgage, this shouldn't be an issue.)
- You can only refinance through HARP once.
- You must live in the home (no investment properties) [Update- Looks like you can do investment properties- see comments section].
Why Refinance through HARP?
The point of HARP is to make your payments smaller. This is done by giving you a lower interest rate and a longer term. For example, if you are 5 years into a 30 year 6% mortgage, you may be able to lower the rate to 4% and extend the loan term back out to 30 years. On a $200K loan, this would lower your principal and interest payments from $1289 a month to $955 a month. You don't have to extend the term though, you could refinance into a 15 year mortgage. If you could get a 15 year at 3.5% on that same $200K loan, your payments would be $1430 a month, but you'd have the loan paid off 10 years sooner. HARP does NOT allow you to take any cash out, although most people using the program don't have any cash to take out anyway since they're underwater. You'll still need to pay the closing costs on the loan, but you may be able to opt to take a higher interest rate to make it a “no-cost” loan or add the closing costs onto the loan balance to make it a “no-cash” loan.
Who's Paying For the HARP Program This?
You may be asking yourself why banks are willing to give you a lower rate when they've got you locked into a high rate you can't refinance. The reason why is that the bank makes money every time you refinance. Some are estimating that banks will have more than $12 billion in revenue from HARP loans this year. Remember that the bank doesn't hold your mortgage, investors do. So when you refinance your loan, the bank pays off the old, high-interest loan (the investor's bond is called), and then sells off the new loan to the same investor at a lower rate. Just as the Fed's low short-term interest rates punish savers to help borrowers, so the Federal HARP punishes investors and rewards borrowers.
Downsides of HARP Program
Basically, this refinance is just like any other. You don't have to go to your current lender (a change from the original HARP). You have to pay closing costs. You should shop around to get the best rates, lowest fees, and best terms. You still have to go through underwriting. You may or may not have to pay for an appraisal. Many banks have been accused of charging higher rates or more fees for HARP refinances than for non-HARP refinances. What did you expect? Would you loan to someone that is underwater at the same price as someone that isn't? Of course not. But that doesn't mean you still can't shop around and compare. Competition lowers prices. Remember also that refinancing isn't always a good idea, especially if you're selling soon. You might not have time to recoup the closing costs with savings on interest.
In short, if you're stuck in a high interest rate mortgage because you're underwater or close to it, take a close look at HARP and shop around for a HARP refinance.
What if your mortgage is underwater in a current BOA Doctor loan with a house value of 135k and owe 145k; BUT there is NO PMI due to current doctor loan so if refinance may get PMI again unless there is a doctor loan refinance. In addition what if it is NOT owned by fannie or freddie? Am I Stuck?
Key Points:
– Doctors Loan with BOA
– House worth 135k and owe 150k
– No Current PMI due to doctors loan
– Not owned by Fannie/Freddie
Current Interest rate 5.65; 30yr
It has to be owned by Fannie or Freddie but you can be underwater. Even with PMI, lowering your rate from 5.65 to 3.5% or so would probably still save money.
Doesn’t HARP 2 allow refinancing of 2nd home?
Duke, is your loan a 7-year ARM? Fixed rate for 7 years and then adjusted rate? I took BOA doctor loan back in 2005 (peak of the market). My house is still $10k under water but because of the low ARM (3/25%), I’m waiting to refinance when the interest rate starts to go up. I think my fixed interest rate was around 5.25% in the first 7 years of the mortgage. I figured I can pay off extra principal each month until I’m caught up.
I believe you can do a second home, but not an investment property. You may be able to refinance into a 3.25% fixed, or if you do a 15, even less than 3% right now with little to no cost. I see little point in waiting for rates to go up to refinance.
Silly penfed, they never sold my loan so no harp for me.
We bought our townhouse in 2007 right before the crash. We were able to refi last year through HARP but the process took about 9 months. I attempted to shop around for rates however no bank would do a HARP refi for us unless our mortgage was currently held by them. Thus, we had to refi w our current lender. We went from a very high rate of 6.875% fixed for a 40yr loan (I know, I know, lesson learned) to 4.75 for a 20 yr loan. Hoping we can break even when we try to sell in 6 years.
White Coat:
There’s one thing that appears incorrect on your article regarding Harps. I have closed four of them on my rental properties, and one of them was just a week ago. So, with that being said, these can be done on Rentals.
To answer the first poster’s question, there should likely be no PMI on the new loan. I just closed a Harp with BOA – see more below. We presently have a 100% doc loan on a home we’ve got listed. I’m pretty confident we could get a harp refi on it no problem.
I have 9 Harp eligable loans. I have refinanced four of them and the others didn’t make sense to proceed with – smaller loan amounts, planning to liquidate homes, etc. We close 2 Harp refis (rentals) with chase, with zero fees. The process was pretty smooth. I literally paid nothing to get my rate dropped 2-3%. We also closed one with Citi, again, no fees. The were a nightmare to work with. The had to completely underwrite the loan twice and it took three attempts to close it due to some clerical shenanigans they proved incompetent in handling. Lastly, we recently closed on a Harp refi with BOA. It was a little painful and the fees were around 2k or so. I was able to negotiate a slight reduction in the origination charge. Try this line, “if I agree to pull the trigger and proceed with this loan, what’s the best you can do for me today?” We were able to get a .5 credit on the loan amount, which was worth a few hundred dollars. It took us about 4 months from start to finish, due mostly to some outrageous BOA loan overlays requiring some outrageous employment verification docs (my wife is the doc, I am self employed and on the loan – so if you’re the doc and on the loan, probably a smoother path).
That being said, some upsides:
We had the option of rolling loan costs into the loan, which we did. The money is cheap and we have higher interest debts we’d rather pay on.
We dropped from 6.125 to 4.25 on a rental with BOA that was well underwater..owe 80k on a rental worth..maybe 40 or so. Long story, it was one of my first rentals and that’s in part why I owe heavily on it.
Cash flow is up about $150 a month.
The skinny of Harp is this:
The program is set up to help underwater homeowners and is probably the first successful program, in that it actually helps people that have continued to pay on their underwater homes. Previous programs have been political bs. That said, the big banks had tons of influence in writing the rules. As mentioned above, there’s no way you can get a better deal or terms going anywhere other than your existing servicer for a Harp refi. If you stay with your existing servicer, the guidelines are relaxed – no/few worries about: credit, work history, debt to income, dti and more. If you go anywhere other than your existing servicer, the terms and overlays are much more rigid. It’s difficult to qualify anywhere other than your existing servicer and that’s by design. The banks want to keep the loans. This program guarantees them of that. I did shop around a little and talked to “the leader” quicken loans, in Harp refinances and they were a bunch of jokers (I used to write loans, so I know when I’m talking to one). If you leave to go somewhere other than your present lender, you will get an inferior deal.
If in doubt, just call them up. You have nothing to lose.
Whitecoat – here’s a link where people can see if there mortgage is eligable. Check both the fannie and the freddie link to see:
http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx
If anyone needs anything in this area, I’d be happy to help.
Thank you for the correction. I wonder where I got that from now.
That’s what I thought too BUT my experience was completely different than yours. Nationstar bought my rental mortgage from BoA and then called me to do ‘expedited’ HARP. They wanted to charge me $17,000 in cost+points to lower to 3.875% from 6.5%. With nothing to lose, I called Quickens and they’re charging me $4000 for 3.5% 15years refi. My mortgage payment would be exactly the same but payoff in 7 years less than original loan. I provided Quickens with all requested paperworks and approved by underwriter in 8 days.
Joe, while I have no way of knowing if you’re sitting in a desk at the quicken loans headquarters, but absent concrete evidence of this, I do not believe you. Honestly, if my mother told me what you have posted, I don’t think I would be able to believe her either (and yes, she was a great woman). Having written loans for a short period of my life and knowing what I know, your post doesn’t add up for a few reasons. First, if you were really getting soaked on points and fees with Nationstar, your rate would be lower, not higher than the “quickens” loan.
Additionally, with the increased regulation and scrutiny, I don’t think a lender could soak someone like you are alleging without getting clobbered by the government.
The grammar and presentation in your remark make me wonder if your a virtual assistant overseas. Your feel good story in no way adds up. Prove me wrong, please do.
Ted. I understand if you’re suspicious cause I’m a newbie and this is my first post. BTW, I was referred here by the Bogglehead forum.
I have two investment properties in Orlando each bought in 2005 for $340K!:(
The first one is currently on 2.75 ARM, resetting each year. The mortgage was initially with BoA but transferred to Greentree 2 years ago. I have decided to ride this low rate until at least 2015. Benanke is guaranteeing low rate til at least 2015 and Obama is extending the HARP 2.0 until the end of 2015. I got plenty of time to refi or pay it off if rate rise too much.
The second one is on 6.5% 30 years fixed. BoA transferred it to Nationstar only 2 months ago. Three weeks ago Nationstar called and offered to refi my mortgage. I agreed and they transferred me to someone who claimed to work for them from ‘LoanDepot.’ They took down all the necessary infos (dob, ss, etc) and offered a deal where I pay a little more per month to cut 7 years and $120K in interest from the life of the loan. I then received the confirmation email from LoanDepot, which showed I currently owe $245K on the property worth only $215K; the new refinanced loan total is now $262K. I called Nationstar on Monday to inquire about LoanDept and the high closing costs; they simply confirmed LoanDepot worked with them. There’s a bunch of websites advertising the HARP 2.0 program so I entered the required infos to request more infos. Quickens got my business simply because they replied first and so that’s who I talked to first. It could have been BoA, Citizen, Citibank or anyone else if only they got to me first. There were a bunch more emails and phone calls from other companies throughout the day. Unfortunately for them, I had already paid Quickens $250 with my AMEX to lock in the rate and begin the refi process. Yes, I had to pay $4000 closing costs.
Quickens have been calling everyday offering to refi my other investment home for 3.75%. I asked them what happened to the 3.5% from last week and they said rate had risen. I said I’ll wait; they called back the next day offered me 3.5%. I would go for a 2.85% 5year ARM, if someone would offer it. Do you have any suggestion?
Bah! I overlooked the “not sold to Fannie / freddie on the first comment! my bad.
Is there any option out there for those of us who are underwater but the mortgage hasn’t been sold to Fannie or Freddie?
Thanks.
As I recall you also own a home. You could take out a home equity loan on your current home, pay down the balance on your rental property with it, and then refinance the rental property with 20% down. Same amount of debt, but probably at a better rate.
Maybe I’m confusing you with someone else.
Justin: probably not. You can try and get creative and find a way to offset the equity gap. If you’re in Missouri and have a modest loan amount, offsetting the equity gap can be accomplished much easier. If you’re in a jumbo, living on the coast, it will be a lot tougher. Some ideas:
1) If you’re a working physician, check around with local banks and see if they will hold a loan in house. When we relocated 3 years ago, the ultra conservative bank who handled the banking needs of my wife’s group told us, “buy whatever you want and we’ll get a loam closed for you.” Thank god we didn’t act like fools and purchased a home well within our means. With that being said tho, you might be able to find a bank that will do a 80/10/10 refi – being an 80% 1st, 10% second (likely held by the local bank) and then you’ll need to have or pay down and have 10% in equity. If you’re going to go for this, be prepared to call 10-40 banks. It just takes one and you’ll have to get through some no’s along the way.
2) If your loan is smaller, and you can handle it, leverage a discounted cash advance rate on a credit line to pay down your equity to qualify for the refinance. A lot of offers at 0 or 1%, but where they bite you is on the transaction fee of 1-5%. If there’s a net gain, it may still be worth it. Also, in the last year, I have been able to advance $23,000 at 0 interest and I paid a total of $100 in fees to get it. It’s not easy, but can be done.
3) Take out a physician loan. Suntrust was bombarding us with them for awhile near the end of my wife’s residency. We never took one, but it could get you access to the cash you need, which you could in turn use to refi the house.
4) You could also get a short term loan from relatives. Sure, it’s not a sexy option, but if your rate now is awful, the savings would be likely be worth it.
Lastly, what is your current rate and loan balance? How much longer do you expect to stay in the home? The market has picked up some steam, I think it’s a short term improvement that will get a reality check when it the economy is unable to be manipulated further. Either way, a warmer market means your home may appraise better now than it would’ve 6 months ago. That’s quite favorable to your situation.
I love what you guys tend to be up too. Such clever work and coverage!
Keep up the wonderful works guys I’ve included you guys
to blogroll.