The Obama Administration introduced a new program to allow millions of borrowers to refinance their homes even if they are under water. Traditionally, homeowners aren't able to refi without at least some equity in the home... often 20%. This means if your home is worth $300,000 you'd only be able to refi up to $240,000 into a new loan (20% equity scenario).
This newest revision to the original Home Affordable Refinancing Program (HARP) holds the most promise for those who have been making payments regularly and on time on their FHA loans. The new program will allow those who have been current on their loans to take advantage of rock bottom interest rates (national average is now under 4% fixed as I write).
Effective June 11, 2012, for qualifying borrowers, the cost for the upfront mortgage insurance on FHA loans will be reduced to 0.01 percent of the loan amount, down from 1 percent, according to a White House fact sheet. Additionally, the annual mortgage insurance amount will be reduced from 1.15 percent to only 0.55 percent per year.
I know that many borrowers I've spoken with have been upset and disappointed by previous industry loan modification programs in the past which have required a certain level of trust with lenders to follow through on. But if you've got the motivation and fit the criteria, this can be a real cost cutter in terms of lowering your mortgage payments. Here are the general qualification guidelines:
- Your current loan must be owned or guaranteed by Freddie Mac or Fannie Mae.
- You must be current on an existing FHA-insured mortgage signed on or before May 31, 2009.
- You haven't already refinanced under HARP in the past few years.
- Your current loan-to-value (LTV) ratio is greater than 80% (meaning you owe at least 80% of your home's market value (i.e. you're "under water"). Using the same $300,000 example above, your home loan would have to be at least $240,001.
- You must be current on your mortgage at the time of the refinance with NO late payments in the last 6 months and no more than one late payment of 30 days or less in the last 12 months.
Meet these criteria and you should definitely talk with a lender about refinancing your home. Here are several things to keep in mind when considering this early Christmas gift:
- There is no longer a maximum LTV.. This means that no matter how under water you might be, your LTV ratio will not automatically disqualify you. This is great news for those whose home values (especially condos) have headed south for the winter.
- In most cases, you can only get a fixed rate. So if you are thinking of trying for an ARM to get a lower interest rate, don't. :-)
- There is no appraisal that is needed. Since there is no longer an LTV cap, what would be the point? This saves you $400-500 dollars instantly. The underwriters will still run an automated program to get a valuation for your home but it won't affect your ability to get the new loan.
- Unlike previous programs, like lender-driven loan modifications, this one should be more well received by lenders. Don't shy away because of past experiences with loan mods.
- Loans will be cheaper with a lot of the old fees being either reduced or eliminated under these new HARP revisions. This makes the refi more affordable than ever for those who qualify.
- Don't qualify because of recent late payments? Don't worry. Try and get back up to current (see Qualifying term #5 above) and refi when you've been able to do that. This program will run through December 2013.