The Federal Housing Finance Agency created the Home Affordable Refinance Program, orHARP, in 2009 to give refinance options to homeowners whose mortgage balances are higher than their property values and who are often turned away by traditional lenders. So far, HARPhas helped more than 3.4 million homeowners refinance their loans.
HARP expires Sept. 30, 2017, but two refinance options will fill the void:
- The Fannie Mae High Loan-to-Value Refinance Option.
- The Freddie Mac Enhanced Relief Refinance.
Both refinance options have the same requirements and are meant for borrowers with high loan-to-value ratios.
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As of October 2016, more than251,000 mortgages were eligible for a HARP loan. However, fewer than 139,000 would actually benefit from one,according to the Urban Institute’s Housing Finance Policy Center, because the closing costs to refinance those mortgages would outweigh any long-term savings.
Here’s a closer look at these two programs:
Like HARP, the new refinance options can reduce the term or interest rate on your existing loan, as well as lower your overall monthly principal or interest payments. That frees up space in your monthly budget tomeet other financial obligations.
“Providing a sustainable refinance opportunity for high LTV borrowers who have demonstrated responsibility by remaining current on their mortgage makes financial sense both for borrowers and for [Fannie Mae and Freddie Mac],” said FHFA Director Melvin L. Watt in a release. “This new offering will give borrowers the opportunity to refinance when rates are low, making their mortgages more affordable and thus reducing credit risk exposure for Fannie Mae and Freddie Mac.”Refinance program eligibility
If you already have a HARP loan, you won’t be able to refinancethrough these programs, becauseyou’ve already received federal mortgage relief. To be eligible, you must also:
- Have made 12 consecutive monthly mortgage payments on the loan since it became part of Fannie Mae’s or Freddie Mac’s portfolio.
- Not have made alate payment within the past six months.
- Not have missed more than one payment within the previous 12 months.
- Have a verifiable source of income.
- Receive at least one of the following benefits from the refinance: a reduction in your monthly principal and interest payment; a lower interest rate; a shorter amortization term; or a more stable loan product (switching from an adjustable-rate mortgage to a fixed loan, for example).
Advantages of applying
These new loans have several advantages over a traditional refinance. They don’t:
- Require a minimum credit score.
- Mandate a maximum debt-to-income or loan-to-value ratio limit.
- Usually require anappraisal.
- Limit the number of timesyou can refinance with these programs.
- Set aloan origination cutoff requirement. HARP, by contrast, is applicable toloans originated on or before May 31, 2009.
They also have a streamlined application and documentation process.How to get help
If you want to refinance but traditional lenders have turned you away, askFannie Mae or Freddie Mac if you qualify once the new programs go live in October. And contact your current lender as soon as possible to explore relief options.
The article New Fannie, Freddie Refinance Options: What to Know originally appeared on NerdWallet.