Can a HARP Refinance help you?

By
Real Estate Mortgage Broker with Mortgages Unlimited, Inc

Can a HARP refinance help you?

Minneapolis, MN:  A HARP refinance, in short, allows you to refinance with expanded eligibility requirements in regards to loan-to-value, or debt-to-income. That could mean that you are allowed to refinance, even though your home may have lost value., or the payment is a bit higher than normally allowed for your income. That flexibility allows many homeowners to refinance when they otherwise would not be able to. The idea is that even though the new loan might be a risky loan compared to other loans files with lower ratios it is still less risky than just leaving the home owner in their current position. Fannie Mae or Freddie Mac is on the hook for your loan if it’s a HARP refinance, so they want to allow you to get a lower payment and be in a position where you are less likely to default on your mortgage.

What do I mean exactly by expanded eligibility?

Well, Fannie Mae and Freddie Mac have what we call Automated Underwriting Systems. Fannie Mae and Freddie Mac each have their own system and they have certain thresholds that are known in the industry. For instance, we know that a total debt ratio of 45% is a very important number. Why? Normally, if your total debt ratio is over 45% then you are denied. On new loans, these systems will both issue approvals up to a 50% total debt ratio but if you are over 45% you need to have what we call “compensating factors” to get approval. With a HARP loan this 45% number is basically thrown out the window and the Automated Underwriting Systems are much more flexible with their approvals.

Loan to value ratio is also very important in any loan transaction. The normal rules are if the property is your primary residence then you can have as little as 3.5% equity and you can refinance. If the property is a rental then you’ll need 25% equity to get a refinance.  HARP allows you to be significantly underwater and still get the loan done. That means instead of having to have equity in the property you can have a property that is worth less than what you owe and still refinance.

MY LENDER said NO to HARP

Understand this important fact, Fannie Mae and Freddie Mac do NOT do loans. They BUY loans from lenders. Not all lenders feel the same about the risk to them about doing HARP refinances. Most lenders are very conservative today.  Keep in mind that lenders can have “overlays” to the basic HARP guidelines that restrict what that company decides to refinance. You don’t have to go through your current lender to get a HARP 2.0 refinance done.  Shop around to find the best HARP mortgage interest rate just like you would with any other refinance. And good luck!

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Comments 2 New Comment

Ambassador
437,199
Paul McFadden
Mortgage Loan Officer, Bellevue Washington Home Lo
Alaska USA Federal Credit Union

Joseph: My experience with HARP loans is a mixed bag. Yes, they can help the homeowner save quite a bit on their monthly payment. But HARP 2.0 loans are expensive and the wait time can be longer. Thanks!

September 10, 2012 10:32 AM
Rainmaker
149,079
Joseph Metzler
MLO MMS NMLS # 274132.
Mortgages Unlimited, Inc

HARP isn't anywhere near perfect...  It is a lot of things, both good and bad, but expensive?  It is no more expensive than any other loan???

September 10, 2012 03:07 PM
Rainmaker
149,079

Joseph Metzler

MLO MMS NMLS # 274132.
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Additional Information

Mortgage industry news and insights from a 15+ year industry expert. Mortgage are Real Estate News You Can Use. Joe is a Certified Minnesota Mortgage Specialist, who provides home mortgage loans not only in the Minneapolis, St Paul area, but all of Minnesota and Wisconsin.