Home Affordable Refinance Program (HARP): The Federal Housing Finance Agency made HARP Loan Program to assist many homeowners with homes worth less than the outstanding balance on loan. This program was created to help homeowners in 2009, seeing the drastic negative impact of the 2008-recession in the US.The major problem with HARP Loan is that not everyone is eligible for it. It was instead a complex process to get approved for the HARP program for those owing more than what their home is worth.The HARP ended in 2018, while the borrowers living underwater on their mortgages. However, some Advantages and Disadvantages of a HARP Loan must be considered before deciding on refinancing a mortgage.
The advantages of HARP Loan allow homeowners to keep their finances balanced even if they struggle with a potentially underwater home. Here is some potential benefits of the HARP Loan Program.
The main qualifying criteria for HARP Loan is that it must be helpful to the homeowner somehow. HARP loan benefits homeowners by stabilizing the mortgage. Once homeowners get approval, they can pay their mortgage by shifting from an adjustable rate to a fixed rate.
HARP 2.0 features lower refinance charges for homeowners as they can apply for the program with mortgages, Including Private Mortgage Insurance. In addition, the government offers more support to lenders since there are minimal appraising and underwriting requirements. HARP also allowed refinancing options on all occupancy types, such as rental properties and second homes.
Applying for the HARP Loan program benefits homeowners with investment properties. Most Mortgage Refinance Assistant Programs excluded investment properties, and with that in action, many citizens had to exclude their non-owner-occupied properties, second home and vacation homes. HARP program provides certain limits to the investment properties; for example, the maximum number of units of non-owner-occupied properties can be four, while a second home or vacation home must count as a single unit.
Even though HARPO Loan requirements are strict, they are not as strict as other refinance programs for borrower qualification. Homeowners don’t have a minimum credit score to qualify. They are also not obligated to have a maximum debt-to-income ratio. Many borrowers could apply because of these two advantages of HARP Loan despite having a low credit score.
Your credit score is seldom affected negatively even after you apply for the HARP Loan program. There are no punishments for the borrowers who make lower payments than their original mortgage since it’s a refinanced loan. The only problem is the addition of ‘Hard’ credit deducted upon many reports pulled by lenders. The frequency of reports pulled is higher in the past 24 months; the same may reduce your credit score noticeably.
Provided not everyone can qualify for the HARP Loan program, the eligibility criteria for the same can be a tricky affair for many. The following disadvantages of HARP Loan program list out the possible limitations.
Some applicants may have to go through additional qualifications placed by specific mortgage service providers. In addition, homeowners may have to fulfill specific conditions to qualify under standards issued by the US Government. Some of the criteria include having a mortgage guaranteed by Fannie Mae or Freddie Mac. The mortgage must have been acquired before May 31, 2009, with an 80% or above LTV ratio.
Homeowners having used HARP Loan are not eligible to reapply for the loan. This turns out to be the biggest disadvantage of HARP loans, especially when the homeowners have maintained good credit scores or current mortgages. Such limitations can build more troubles for homeowners in the future with no refinance products available in the market.
If you have made late payments or bounced any instalment in the past, you are ineligible for HARP Loan. All the borrowers must be current on their mortgage, which is the foremost eligibility criteria to qualify for the HARP loan program. The borrowers cannot have bounced a mortgage payment or paid within 6 months before the application. The homeowners opting for a HARP Loan must also not have had more than one late payment in the 12 months before applying.
Homeowners can take HARP Loan up to a specific amount ranging from about $450,000 to about $675,000 maximum in the 48 continental states. Whereas in Alaska and Hawaii, the maximum limit is just above $1 million which apply to a single property unit. Refinancing can be more difficult for homeowners who live in more expensive areas.
Those taking the HARP Loan program may not be able to get services from Freddie Mac’s HARP replacement. Recently, two replacement programs have been introduced, Fannie Mae High LTV Refinance Option (HIRO), to replace HARP entirely with new eligibility criteria. For example, Freddie Mac must be the owner of your current mortgage, and you must have a high loan-to-value ratio to be eligible for FMERR. On the other hand, similar requirements are for HIRO replacement for a HARP loan.
Conclusion on Pros and Cons of HARP Loan
These pros and cons of a HARP loan can help you distinguish how to take most of its new replacements. It’s important to go through their eligibility criteria and the mandatory conditions to qualify. There are plenty of advantages for borrowers using FMERR or HIRO.
The Home Affordable Refinance Program, or HARP, is a mortgage refinancing initiative launched in March 2009 that allows homeowners whose houses have depreciated to refinance at current interest rates without incurring new mortgage insurance.
The Home Affordable Re-financing Program, or HARRP, was a government initiative that provided underwater homeowners with lower interest rates on their mortgage loans. The program began on April 1, 2009, and ended on December 31, 2018.
Harp loans are well-known for saving homeowners a significant amount of money by lowering monthly payments. For example, homebuyers who use HARP loans may save up to nearly 200 dollars each month on their mortgage payments.
You can expect to pay a lower interest rate on your mortgage because of the Tax Cuts and Jobs Act. A smaller monthly principal and interest payment will be required. In addition, the loan term will be shorter. You're switching from an adjustable-rate mortgage to a fixed-rate mortgage.
After a HAMP modification, it's not technically impossible to refinance under HARP. However, the terms of the modification, such as whether or not the loan modification includes principal forgiveness or deferment, and other factors may influence whether or not it is possible.