If you’re not familiar with the Home Affordable Refinance Program (HARP), it’s a conventional loan option rolled out by the U.S. government in March 2009 that allows homeowners to refinance who may have run into some roadblocks due to the decreased value of their home. If your home is underwater, meaning you owe more than your home is worth (aka negative equity), you could still be eligible to refinance into a lower rate or change your term. But you have to hurry, as this program will end December 31, 2018.
We’ll go over the purpose of HARP and who’s eligible, along with some of the more common misconceptions around refinancing with a HARP loan.
What Is HARP, and How Does It Work?
HARP is intended to help people with little to no equity or even those who owe more than their home is worth do a rate/term refinance. That means they wouldn’t deal with the usual equity requirements as long as they were refinancing to lower their rate or change their term.
The goal of the program is to give people financial flexibility through either a lower payment or a term change based on their financial goals.
Who Is Eligible for HARP?
Although HARP is designed to make certain aspects of the qualification process easier, there are certain requirements that must be met in order to move forward. Let’s run through those briefly.
- The investor in your mortgage must be Fannie Mae or Freddie Mac. If you have a mortgage through another major investor (FHA, VA, etc.), there may be other options to provide mortgage relief.
- You must have originated your loan prior to May 31, 2009. This refers to the date you closed on your last purchase or refinance.
- In most cases, you can have no more than 20% existing equity in your home. There’s often no limit to the amount you have left on your mortgage balance, but in certain instances, Quicken Loans requires that you refinance no more than twice the value of your home on your mortgage. A Home Loan Expert will be able to find the best option for you.
- In order to refinance, HARP eligibility requires that you be up to date on your payments. This means no more than one missed payment in the last year and none in the last six months before closing the loan.
- As a general rule, you can only use HARP to refinance once. The only exemption to this is if you refinanced a Fannie Mae loan through HARP between March and May 2009.
If you’ve been turned down in the past, it’s worth checking into the program again. It’s become easier to qualify as a result of policy changes over time, and there may be less documentation needed to determine whether you’re eligible.
If you think you’re a candidate given these requirements, you can use our tool to check your eligibility.
Is a HARP Refinance Worth It for Me?
Beyond the need to qualify, the next thing you should work to determine is whether a HARP refi would be beneficial for you. In order to know this, you need to be clear on your goals as well as what you can and can’t do with HARP.
Where Using HARP Makes Sense
HARP is good if you want to lower your rate and your payment along with it. You can also use it to change your term and make it longer, lowering your monthly payment, or to shorten your term to pay off your home faster.
If you’re looking to decrease your payment by lowering your rate, you can get an idea of how much you would save on a monthly basis by comparing your current payment to a payment at today’s rates. Our amortization calculator might come in particularly handy for this purpose.
Alternatively, you can use the calculator to determine the kind of monthly payment you might be able to afford if you were to shave a few years off your current loan in order to pay off your home faster.
What Are the Disadvantages of HARP?
Obviously, no one loan program represents the perfect solution for everyone, so you might be asking yourself about potential HARP loan disadvantages. What things can HARP not do?
First, HARP is only available on conventional loans originated prior to May 31, 2009. If you have a different loan investor or your loan doesn’t match the time period, you’ll have to look at other options.
Next, you have to be current on your loan, so HARP isn’t for people who are behind on their payments and looking for a way to catch up. The best thing to do at that point would be to speak to your loan servicer about your options, including a potential loan modification. If you’re a Quicken Loans client, you can give our servicing team a call at (800) 508-0944.
Finally, you can’t use a HARP loan to convert your home equity into cash. This program is only available for rate/term refinances.
Understanding the Reality of HARP
HARP has been around for a while, and a fair number of client questions and outright misconceptions have cropped up. We’ll tackle a few of these here.
Are There Any Problems or Risks with HARP Loans?
There’s a risk associated with any mortgage loan that eventually a client might not be able to afford the mortgage payments and end up defaulting. At Quicken Loans, we aim to work with you to make sure you’re in good financial shape. We also invite you to call us if you ever have trouble in order to go over your options.
That said, HARP is no riskier than other lending programs. There’s nothing special a client should be concerned with.
Myth: HARP Will Give Me High Closing Costs
Many people are reluctant to consider HARP because they assume they’ll have high closing costs, especially if they’re refinancing into a 30-year fixed-rate loan. This makes total sense to many people: If you’re underwater on your property in the first place, the last thing you want to do is add a large chunk of brand-new closing costs to the financial deficit you already have. However, HARP doesn’t require a borrower to go into a 30-year loan, and your closing costs can be rolled into your monthly payments instead of a lump sum. So on top of refinancing when underwater, you have the chance to change up your loan agreement if you need to and avoid a lump-sum payment. You may also be able to apply funds in your existing escrow account to the closing costs on the HARP loan so that you don’t have to come up with as much out of pocket for closing. This is referred to as “netting escrows.”
If you think HARP might be right for you, don’t hesitate to look into your options. This program goes away when the calendar flips to 2019. You can get started online through Rocket Mortgage® by Quicken Loans. Feel free to give one of our Home Loan Experts a call at (800) 785-4788. If you have questions, you can leave them for us in the comments below.
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.