A HARP loan is short-hand for the Home Affordable Refinance Program that was created after the 2008 mortgage crisis by the Federal Housing Finance Agency (FHFA). The goal of HARP loans is to help homeowners who have little to no equity in their homes to refinance their mortgage.
A homeowner who owes more than their home is worth typically can't qualify for a mortgage refinance. HARP is unique because it is the only refinance program where borrowers with no equity in their home can be eligible to refinance at a lower Annual Percentage Rate (APR). So far, nearly 3.5 million homeowners have refinanced through HARP, according to FHFA's November 2017 Refinance Report.
How to Qualify for a HARP Loan
Homeowners that have a mortgage owned by Fannie Mae or Freddie Mac—also called a conventional mortgage loan—and who owe more on the loan than the home is worth may qualify for a HARP refinance. That refinance can result in significant savings by reducing your monthly payment or lowering your interest rate.
The current 2018 HARP guidelines state that:
- The loan has to be owned by Freddie Mac or Fannie Mae.
- The loan must have closed by May 31, 2009.
- The loan-to-value has to be greater than 80%.
- The loan has no 30-day late payments in the last six months.
- The loan does not have more than one late payment of 30 days or more in past 12 months.
- The property hasn't already been refinanced using HARP (you can't refinance the same property twice through HARP).
How Does the HARP Program Work?
HARP allows homeowners who are current on their home payments, but whose home loan-to-value ratio exceeds 80% to refinance their home loan and do so without having to pay for private mortgage insurance (PMI). Prior to the HARP loan program being established, only mortgages with a loan-to-value ratio of 105% could qualify.
HARP makes it possible to get the following four benefits:
- A lower mortgage interest rate
- A lower monthly mortgage payment
- A fixed-rate mortgage instead of an adjustable-rate
- A shorter loan length (i.e. 15 years instead of 30 years)
How to Get Started With HARP
You can refinance using HARP until it expires on December 31, 2018. Here are some suggested steps that you can take to get started:
- Determine if your mortgage loan is owned by Fannie Mae or Freddie Mac through their loan lookup.
- Check to see if you are eligible for HARP.
- Determine your loan-to-value (LTV) percentage using an LTV calculator. You will need an estimate of your current home value and the current mortgage balance.
- Contact your current mortgage lender to see if they are an approved HARP lender. If not, find a HARP lender in your state through the Freddie Mac or Fannie Mae website.
- Research what the current mortgages rates are that you may qualify for to get a better sense of how you can benefit from a mortgage refinance.
Are There Any Additional HARP Programs?
The FHFA announced a streamlined refinance program for borrowers with high loan-to-value ratios. The new programs from Fannie Mae (High Loan-to-Value Refinance Option) and Freddie Mac (Enhanced Relief Refinance) are for borrowers who are current on their mortgage but are unable to refinance because their loans have a loan-to-value ratio of 95% or higher.
To qualify for the new programs, borrowers must:
- Have a Fannie Mae or Freddie Mac mortgage that started on or after Oct. 1, 2017.
- Be current on their mortgage payments with no 30-day late payments in the past six months.
- Have only missed one payment (meaning been 30 days late once) in the last 12 months.
Prior to signing any documents, make sure to educate yourself about HARP loans and decide whether a refinance is the best decision for your credit situation.
Borrowers will have to wait 15 months from when their loan was sold to Fannie Mae or Freddie Mac before they can refinance under the new program.