For those of you paying attention to mortgage rates, and we here at Home Point surely do, you may have noticed that rates are at a three year low.
Which is very near historic lows last touched in the fall of 2012.
That has triggered a surge in existing home sales as well as the sale of new homes as well as another wave of refinance. Mortgage rates have been stubborn over the past few months but have slowly drifted lower, potentially unnoticed by homeowners who may have given up on catching one last opportunity to refinance a home loan.
Still others may have discovered that even if rates are low enough now for a refinance to make sense, without any equity in their home or even if they’re upside down on their conventional loan, a refinance isn’t possible due to the lack of equity. Traditionally, a conventional refinance needed at least a 10 percent equity position in order to qualify for a refinance. When property values plummeted millions of homeowners found they were “upside down” with their mortgage, owing more than the property was worth. For those, there still is an opportunity but the window is closing fast.
Congress first introduced the Home Affordable Refinance Program, or HARP in 2009 to address the quandary of no equity, keeping homeowners from taking advantage of falling rates. Under this new program, homeowners could refinance to a lower fixed rate as long as the mortgage didn’t exceed 125% of the current appraised value of the home. This worked for some, but left millions more on the outside looking in.
In 2012, Congress adjusted the plan with some changes that opened up the refinance flood gates with HARP 2.0. One of these important adjustments was the removal of the appraisal requirements.
Why was that important?
Because value wasn’t an issue like the initial HARP was. Under the original HARP, if a home was appraised at $100,000, the maximum loan amount would be limited to $125,000. If someone owed say $135,000, they would have to come in with the difference. Under the revised plan, because there is no appraisal required, the amount borrowed doesn’t matter.
HARP Loan 2.0 Basic Guidelines
The primary requirement is the loan must be owned by either Fannie Mae or Freddie Mac.
This Means Two Things:
1: The loan must be at or under the conforming loan limit for the area.
2: Who you send your mortgage payment to each month is not necessarily the entity that owns your mortgage.
Fannie and Freddie both were established to create liquidity in the mortgage market. They do so by buying mortgages from lenders. Think about that for a moment. Think of a mortgage company that approves say 10 loans at $100,000 each for a total of $1 million. If the mortgage company didn’t have a place to sell these 10 loans they would soon run out of money to lend. Fannie and Freddie free up that cash as long as the mortgage company approved loans using their guidelines.
To see if your loan is owned by Fannie Mae vs. Freddie Mac, they both have established portals on their sites that allow you to lookup your property address to see if it is indeed owned by one of them. If your loan is at or under the conforming limit it’s likely your loan is sitting at Fannie or Freddie as you read this.
Second, your loan must have funded on or before May 31, 2009. Your note included with your original mortgage documents will have the note date listed. If you qualify for both of these requirements, you’re eligible for the HARP Loan 2.0 program.
But this program is scheduled to end on December 31 of this year.
In addition, you must be current on your mortgage at the time of application and no more than one payment made within the past year more than 30 days past the due date and none within the previous six months.
You’ll also be required to provide documentation regarding your income, showing the ability to repay the new mortgage payment. There is no minimum credit score requirement, either.
If this is you or you know of someone who tried to refinance in the past but couldn’t due to appraisal issues, it’s time to contact us to see if a HARP Loan 2.0 is a good fit for you. Mortgage rates are much lower today than they were in 2009 and very near the historic low hit in late 2012.
In fact, Freddie Mac recently reported the 30 year national fixed rate average hit lows not seen in three years. You may also use the HARP 2.0 program to refinance out of an adjustable rate mortgage into the stability of a fixed rate loan or refinance to a shorter term fixed rate.
The Process Of a HARP Loan
The process for obtaining a HARP mortgage is really no different than when you first applied for the mortgage you have now. You’ll complete the very same loan application as you did before and submit it to us. You don’t have to use the same lender who first originated your mortgage. Provide the documentation requested. You can expect to provide your two most recent W2 forms as well as your recent pay check stubs covering a 30 day period. There will be no appraisal required and no minimum credit score, although we will review the mortgage payment history over the past 12 months.
While there are not very many who expect the Fed to raise rates this year, it’s very likely that will happen in early 2017. There’s also the possibility that Congress will extend the December 31 deadline but that’s certainly no given. This is a political year and Congress will have their minds on other things so don’t let this opportunity pass once again.
If you’re not sure if a refinance will benefit you in your situation all it really takes is a short telephone conversation with one of our loan officers who can run the numbers, compare payments and provide an estimate of potential closing costs. There are just five months left in 2016, so don’t delay.
