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Understanding How the Home Affordable Refinance Program Work

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Many individuals run into financial struggles from time to time. Prior to the availability of home loan modification and refinance programs, borrowers had few options for getting caught up or getting support if they faced difficulty making their monthly mortgage payment. However, new programs have changed this. The Home Affordable Refinance Program, commonly known as HARP, provides an option for some borrowers.

What Is the Home Affordable Refinance Program?

The Home Affordable Refinance Program was put in place in March of 2009. At that time, many homeowners were struggling with homes no longer worth what they owed on them. The financial crisis and housing market crash caused significant financial hardship for property owners. This program helped to provide borrowers with the ability to refinance their homes into more affordable options. However, it stands out from traditional refinancing in several ways:

  • It helps those who may not have much or any equity in their homes to secure a new loan.
  • It may help individuals without the requirement for new or additional mortgage insurance applied.

There are many other qualifications for the HARP program. However, for borrowers who may be struggling to make payments because their monthly payment is too high, this could be the help necessary.

Keep in mind, as of the time of this writing, the HARP option was only available through December 31, 2018. Individuals who wish to apply for it must do so by this date.

Who Is Eligible for the HARP Option?

This Home Affordable Program has several requirements for borrowers. Not all homeowners qualify for it. To be eligible, individuals had to meet specific requirements. These include the following:

  • The homeowner has to be current on his or her loan. Individuals cannot be late on payments.
  • The homeowner must not have any 30 day or longer late payments within the previous six months and no more than one in the previous 12 months.
  • The loan must have been originated (or put in place) on or before May 31, 2009. Loans after this date do not qualify.
  • The loan has to be owned by Fannie Mae or Freddie Mac, the U.S.’s largest mortgage holding firms.
  • The homes loan-to-value cannot be more than 80 percent. This means the amount owed on the home cannot be more than 80 percent of its current value.

Individuals who are unsure who holds their mortgage can have their lender look this information up. Keep in mind that Fannie Mae and Freddie Mac do not necessarily serve the loans – you may have another loan company you are making payments to.

What Are the Benefits of the HARP Program for Borrowers?

Borrowers will benefit from the HARP program in several ways. First, it provides an avenue for refinancing a loan even if the borrower has not been able to do so in the past. Borrowers with loans owned by these lenders are able to refinance their loan through the program even if they have been turned down previously (if they meet specific eligibility requirements).

The benefit of refinancing these loans can include several things. For example, some property owners will benefit from the lower interest rates currently available. Lower interest rates can mean the borrower pays less to purchase his or her loan over the lifetime of the loan. Additionally, it is possible to reduce the monthly mortgage payment. This can make it possible for a homeowner to avoid the risk of losing a home through foreclosure if he or she cannot make payments.

Additionally, some people can benefit from HARP because it allows borrowers to go from an adjustable rate loan to a fixed rate. With a fixed rate loan, the monthly mortgage payment agreed on with the new loan remains the same throughout the entire term. This makes it easier to make and predict payments.

Some borrowers also benefit with a shorter loan term. A shorter term may mean the home builds equity faster and also allows for lower overall costs to purchase (there is less interest applied on the loan).

Is the Home Affordable Plan Right?

The Home Affordable Refinance Plan can be a very good investment for many people. Individuals should consider the following if they are considering applying.

  • Determine if eligibility requirements are met for the home and for the borrower.
  • Request help under the program through a current lender or a new lender. Choose a recognized Fannie Mae, or Freddie Mac approved lender.
  • Apply for the refinancing.

The homeowner will need to consider the new terms carefully to ensure they accomplish his or her goals. A lower monthly payment, lower interest rate, or better terms may be available. Individuals who are current on their mortgage but struggling to make payments should consider the benefits of applying for this refinancing. Securing a new loan with better terms may make financial sense.

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