There are times when homeowners find themselves underwater on their mortgage, which means the balance of the mortgage is higher than the fair market value of their property. This became a big problem when the housing bubble burst over ten years ago, but it still happens today.
For ten years, the Home Affordable Refinance Program (HARP) helped homeowners who had loans that were underwater. They were able to refinance to gain a lower interest rate — saving money and hopefully building equity in their homes in the process. Unfortunately, HARP ended in 2018, leaving other homeowners in this situation wondering what they can do for some relief.
Luckily, both Fannie Mae and Freddie Mac offer similar programs to HARP, known as higher loan-to-value ratio (LTV) programs, that allow homeowners to refinance. Even if you don’t have a substantial amount of equity in your home, you could benefit from a higher LTV refinance if you qualify.
For those who were familiar with the HARP program, there are some differences between it and the new higher LTV refinance programs. Here are six common questions we’ve heard — and answers.
1. Am I eligible to refinance with the new higher LTV refinance programs?
There are no limits to how many times you can use these programs to refinance your home — this is in contrast to HARP, which only allowed you to use the program once. If you have used the HARP program in the past, though, you won’t be eligible for the higher LTV programs.
In addition to that requirement, to be eligible for the new refinance programs, you must have a Fannie Mae or Freddie Mac loan that closed on or after October 1, 2017. You can’t have any 30-day delinquencies on your mortgage payments for the past six months, no more than one 30-day delinquency in the last 12 months, no delinquent payments that are more than 30 days past due, and you must be current on your payments.
Speak with a mortgage specialist to be sure because although you may technically be “eligible” for one of these programs, you also still have to qualify for the loan itself.
2. Are there any other differences?
Yes. The Fannie Mae and Freddie Mac programs both have a requirement based on the age of the loan, which HARP didn’t have. Loans that are underwater need to be at least 15 months old to be eligible for refinancing under the new higher LTV programs. The reason for this is so lenders can avoid the illegal and predatory practice of what’s known as loan churning.
3. What are the credit score requirements?
Neither Fannie Mae or Freddie Mac will require you to have a minimum credit score in order to refinance under their new higher LTV programs, unless the principal and interest payment is increasing over 20% vs. the current payment. They will obviously take into consideration what your credit score is as well as your loan-to-value and your assets and debts when underwriting your new loan, but it’s good to know that even lower credit scores may qualify.
4. What are the benefits of the higher LTV refinance programs?
By refinancing, you could potentially reduce your interest rate, which could reduce your monthly payment, as well as obtain a fixed-rate mortgage if you are financing with an adjustable-rate mortgage now. In addition, you could take advantage of a shorter-term deal so that you can build equity in your home faster.
5. Do I have to have private mortgage insurance?
Another great benefit of the new higher LTV refinance programs is that if you don’t already have private mortgage insurance with your current loan, you won’t be required to pay it under your new refinanced loan. If you do already pay PMI, though, it will be transferred to your new loan under Fannie Mae and Freddie Mac’s programs.
6. Is participating in the higher LTV refinance programs an arduous process?
Fannie Mae and Freddie Mac have simplified the approval process for their new higher LTV refinance programs. Much of the approval is done electronically, using automated programs that analyze your information and then assign a risk factor to you.
This means that you may only need to provide confirmation of your current employment and upload recent pay stubs and bank statements to see if you’re approved. The automatic electronic underwriting cuts out a lot of information gathering and document preparation on your end, streamlining the approval process.
The electronic process also means you could avoid having to pay for an appraisal of your home, which can be expensive. This isn’t available to everyone, but you could qualify for the higher LTV refinance programs without the need for an exterior and interior appraisal of your home.
Have More Questions? Speak to a Mortgage Expert
The former HARP program and the new Fannie Mae and Freddie Mac higher LTV refinance programs can sometimes be difficult to understand. Even with the above common questions answered, you may still not be certain if they are programs that could be right for you.
That’s why it’s important to work with a mortgage company that is experienced in all aspects of home financing. Embrace Home Loans has a team of mortgage experts that can help guide you through the sometimes difficult-to-understand details of these programs to see if they are right for you. Call today at (888) 907-6261.