Your neighbors have all refinanced their homes. They're enjoying the low interest rates that come with their new loans. You'd like to join them, but you have a problem. Your home's value has dropped since you purchased it, and you no longer have the 20 percent equity that most conventional mortgage lenders require before approving homeowners for a refinance. Fortunately, you do have an option: you can refinance your loan with a government program funded by federal stimulus dollars.
Home Affordable Refinance Program
The federal government launched its Home Affordable Refinance Program in 2009. Better known as HARP, this program provides financial incentives to mortgage lenders who refinance homeowners' mortgage loans, even if these homeowners don't have the standard 20 percent equity in their homes. The government launched the program to help the many homeowners across the country whose residences have lost value following the housing crash that started in late 2006. You can owe as much as 125 percent of your home's value on your mortgage loan and still qualify for a refinance under HARP.
Requirements
Not all homeowners can qualify for HARP. Like most federal programs, you'll have to meet certain requirements. Fortunately, the HARP requirements are fairly straightforward: you must be the owner of a home with just one to four living units, be current on your monthly mortgage payments and have a mortgage loan that is either owned or guaranteed by Freddie Mac or Fannie Mae. For the purposes of HARP, being current on your mortgage loan means that you haven't been more than 30 days late on your mortgage payment in the last 12 months.
Home Appraisal
The key to securing a refinance through HARP lies in your home's appraisal. Your mortgage lender -- and under HARP rules you must work with the mortgage company currently servicing your existing home loan -- will send a real estate appraiser to determine the market value of your home. If the appraisal comes in too low, and you end up owing more than 125 percent of your home's value, you won't be able to qualify for a mortgage refinance under HARP. You'll have to pay for this appraisal, usually about $400, whether or not your residence appraises high enough to make a refinance possible.
Other Qualifying Factors
To successfully close on a HARP refinance, you'll also have to meet some other requirements to satisfy your mortgage lender. You'll need to have a high enough credit score, usually above 750, to nab the low interest rates that make a refinance financially worthwhile. You'll also need the right debt-to-income ratio. In general, most conventional lenders will only approve you for a refinance if your monthly debts, including your new estimated mortgage payment, total no more than 36 percent of your gross monthly income.
Tags: your mortgage, home value, more than, mortgage loan, percent your, under HARP
