HARP Refinance

HARP refinance is a refinance program for homeowners who owe more than their home is worth. The abbreviation "HARP" is for Home Affordable Refinance Program. It is sought by homeowners who purchased their properties when real estate values were high. As home values fell, homeowners who were paying the affordable monthly payments of a 30-year loan soon realized that the amount they owed was less than the current value of their property. The lowered value made the amount of equity the owners had decrease, which disqualified them for a regular refinance. This is why HARP was formed.

The HARP refinance option isn't available to all homeowners. It is offered to those who have a loan through Freddie Mac or Fannie Mae. This program can only be used for a first mortgage. Homeowners who have their second or third mortgage through either of these companies won't qualify. Although HARP allows for up to 125% of the home's appraised value to be refinanced, most lenders only offer 105%. Most people find that their new payments with this type of loan are much more affordable. Choosing this option has kept many qualifying homeowners from selling their home or facing foreclosure.

Another reason most homeowners who qualify for a HARP refinance apply for one is because the interest rates are better. Those who purchased homes when the values and rates were higher now qualify for lower interest, resulting in much less money paid over the life of the loan. With a regular refinance, homeowners who qualify but have a loan to home value ratio over 80% discover that they need mortgage insurance to complete the process. Paying the high price for this, in addition to closing costs, makes a regular refinance much less beneficial. However, some loans have lender-paid mortgage insurance. It is important to know whether or not the loan has this before making a decision.

The HARP refinance has a much more flexible approval process than a regular loan does. Although applicants need to show proof that they can afford the monthly payments, upcoming pay reductions or job changes don't automatically disqualify them. Underwriting terms are more lenient with this loan. As mentioned, unlike other refinancing options, there is no mortgage insurance required with a HARP loan. Sometimes there is no appraisal required for approval. In addition to this, closing costs are greatly reduced. The maximum amount of cash out allowed is $250 with a HARP refinance.

Written By: Sarah. Last Modified: 10 July 2011