Living in your dream house is everyone’s long-time dream. Being able to purchase your first home is a huge success.
Seeing the result of blood, tears, and sweat from all hard work is motivating and fulfilling. But before taking this step, there is a long process to follow.
There’s a need for a person to have their mortgage for protection. It is essential, especially for those who can’t pay the total cost of a house.
A mortgage is lending a home buyer enough resources to obtain a home. Whether they’re going to purchase a new house or have an existing home.
The mortgage will pay the builder or seller directly and create a timetable for the borrower’s payment. This will be according to the repayment that a borrower can afford.
Now, there are times that a borrower will change their mortgage, especially if they want to lower their mortgage rate.
Refinance is the term to use if a person will change their existing mortgage. Refinancing one’s mortgage means that they are trading their old one for a new one.
There are a lot of refinancing programs, but one of them is the Home Affordable Refinance Program.
The Home Affordable Refinance Program or HARP has been serving people for 10 years. The program helped most homeowners underwater to refinance. Thus, helping them save money, lower rates, and build their house’s equity.
Even though HARP was terminated in 2019, two initiatives offer similar benefits with few twitches.
The two initiatives that were federal-backed for soaring loan-to-value (LTV) ratio mortgages offer almost the same benefits as HARP. These two are Freddie Mac’s Enhanced Relief Refinance and Fannie Mae’s High LTV Refinance Option.
Before we move on to discuss these two, let’s watch a video to get a gist of the HARP Refinance Program:
What is HARP all about?
Sometimes, homeowners will find themselves underwater because of falling real estate values. A homeowner with limited equity will be the one affected by this downfall.
They will owe more mortgages worth more than their homes. The possibilities of selling their home or refinancing will happen.
Mainly that it doesn’t produce enough cash. This is also alarming because tons of homeowners suffer amid a housing crisis.
In 2009, a refinance program for those borrowers with their mortgages had negative or little equity. The Home Affordable Refinance Program gives people a chance at refinancing their mortgages at cost-effective rates.
HARP developed through the years. Homeowners could now refinance to above 125% based on their homes’ value without primary mortgage insurance.
Sadly, HARP expired last December 31, 2018, even after being extended twice over the years in service.
According to experts, even though HARP has its purpose, there aren’t a lot of demands. There aren’t many people applying to possess above what their home is worth.
There are nearly 3.5 million borrowers who used HARP’s programs between April 2009 and December 2018. Even today, some homeowners still have active loans with HARP, although HARP is no longer accepting applications.
What is the HARP Replacement Program?
In the year 2020, there was a minimal decline in the percentage of homeowners with negative equity. Around 1.5 million or 2.8% of most mortgaged properties are underwater.
This makes a significant dip of 21% from 2019 and a lot of difference from the 26% in 2009.
Back then, most of these homeowners in the state of underwater housing would refinance through HARP. They will work with HARP to build and aim for positive territory.
However, since the HARP ended in 2018, two federal programs presented new refinance solutions. Their offers and rates are perfect for the homeowners that were underwater due to mortgages:
- Fannie Mae’s High LTV Refinance Option
- Freddie Marc’s Enhanced Relief Refinance
Freddie Mac and Fannie Mae are government-sponsored programs that buy and resell mortgages. They resell mortgages at more affordable rates for homebuyers.
People who have mortgages with Freddie Mac and Fannie Mae are the ones who benefit from these programs. They are intended for those people with rising loan-to-value ratios.
Lenders use LTV to know how much of a risk it will be to lend money to someone. These programs are designed to help homeowners whose LTV ratios are too high for a refinance with a private lender.
Homeowners who are employed and have good credit will be able to take advantage of low interest rates. It can be applied to them even if their home values have declined.
The Freddie Mac and Fannie Mae Options have the exact eligibility requirements and features. However, there are still differences when it comes to their LTV ratios for multi-unit homes.
It is essential to know that the GSE a homeowner got a loan from is the one they need to refinance with. For example, a person can’t use the Freddie Mac high loan-to-value refinance option with a Fannie Mae-backed loan.
If a person refinances with these means, they won’t have to pay for new mortgage insurance. Mortgage insurance will bring people’s monthly payments.
There are chances that a person cannot get low-interest rates through these programs. However, it will be a more straightforward process in qualifying and benefits because of simplified documents needed.
Although the rates may not be more competitive than other traditional lenders.
Fannie Mae’s High Loan-to-Value Refinance Options
The Fannie Mae High Loan-to-Value Refinance Options is designed to help homeowners refinance with no or little equity in their homes.
The option is beneficial for people who have an up-to-date Fannie Mae mortgage payment. Also, those people who have a higher LTV ratio than the allowed ratio in a traditional refinance.
This option can earn a person a lower payment, interest rate, and shorter repayment terms in their mortgage. The minimum LTV option for a one-unit home is 97.01% in this option.
They also consider the requirements that may vary depending on how many units in a home. Another consideration is if their home is a primary or secondary one and an investment property.
For example, on a $200,000 home valued, a person can be qualified for this loan if they have $5,980 or less equity.
A person’s existing mortgage would be transferred to their new loan. They won’t need any new mortgage insurance if they don’t have one.
Compared to a conventional refinance, the document standards are less stringent around verifying income, employment, and assets.
A person can refinance their mortgage with this option as many times as they want and if they can meet the eligibility requirements.
This is a good thing about Fannie Mae’s refinance option because there’s only one chance to refinance in HARP. On the contrary, if a person has refinanced their mortgage through HARP, they are ineligible for Fannie Mae’s option.
How Can I Pass for Fannie Mae’s Refinancing Option?
The following is a list of what you’ll need to pass the application with Fannie Mae’s option:
- A person should have an existing Fannie Mae mortgage starting October 1, 2017, and onwards. (Someone can look it up using this tool if they have a Fannie Mae loan.)
- A person should have at least a 15-month gap between their high LTV refinance note and mortgage note.
- A person should be current in their payments. There shouldn’t be any 30-day delinquencies within the previous six months and 30-day delinquency within the past 12 months.
- A person’s mortgage should not have been refinanced by Fannie Mae’s DU Refi Plus, Refi Plus mortgage, or HARP.
Freddie Mac Enhanced Relief Refinance
Like Fannie Mae’s LTV option, the Freddie Mac Enhanced Relief Refinance program benefits those with minimal equity. This program can be beneficial to those homeowners who have little equity in their homes and want to have competitive rates.
Homeowners currently have Freddie Mac, currently on their payments, and aren’t eligible for a traditional refinance are qualified to apply for this option.
The minimum LTV option for a one-unit home is 97.01% in this option. The minimum LTV may vary depending on how many units in their home. Also, whether it is an investment property or a primary or secondary residence.
Paying for a new mortgage is not required in this program, and they can transfer your existing mortgage insurance. A homeowner also doesn’t need to provide that much documentation, unlike with a conventional refinance.
Through the Freddie Mac program, refinancing one’s mortgage as many as they want is possible. Unlike in HARP, a homeowner can refinance their mortgage for one time.
On the other hand, if a homeowner was a beneficiary of HARP, they cannot refinance with Freddie Mac’s program.
Below are the requirements a person needs to meet to be able to refinance with Freddie Mac Enhanced Relief Refinance:
- A person should have a Freddie Mac mortgage note starting November 1, 2018, and onwards. (Someone can look it up in this tool if they have a Freddie Mac loan.)
- There should be a 15-month gap between the high LTV refinance note and mortgage note.
- A person should be current in their payments. There should be no 30-day delinquencies within the previous six months and 30-day delinquency within the past 12 months.
- Their mortgage should not have been refinanced through HARP previously.
What’s the Difference between the New Programs and HARP?
Although the new programs have similarities with HARP, there are still a few differences between them.
HARP allows their homeowners to refinance their mortgage once, and there’s no limit in their programs. If a homeowner has already used HARP’s programs one more time, they cannot apply for the new programs.
At HARP, there’s no required loan age, unlike the two programs that require a loan age. Fannie Mae and Freddie Mac only refinance underwater loans that are at least 15 months old.
Loan age allows the lenders to have the time to know the payment history of the borrower and decreases the loan churning. Loan churning is considered predatory lending.
Fannie Mae and Freddie Mac base their programs on the LTV ratio. They require homeowners to have a starting LTV ratio of 97.01% for homes built for single families.
The required percentage is a little higher than HARP’s 80% minimum LTV ratio. On the contrary, the two programs have no LTV maximum, just like HARP.
How Can I Register for HARP Replacement Programs?
Suppose a homeowner is interested in refinancing with HARP’s replacement programs, calling the lender/servicer the first step. Call the mortgage lender or services to know if their loan is supported by Freddie Mac or Fannie May.
They can also contact Fannie Mae or Freddie Mac directly to know more about their programs:
- Fannie Mae – Contact (800) 2FANNIE from 8 a.m. to 8 p.m. ET. They can also use Fannie Mae’s loan lookup tool online and visit their page for Know Your Options.
- Freddie Mac – Contact (800) FREDDIE 8 a.m. to 8 p.m. ET. They can also use Freddie Mac’s online mortgage lookup tool and visit Freddie Mac’s home page.
Learned Something New?
Refinancing might give benefit with these programs, especially if a person needs dire help with their mortgage.
Refinancing makes their monthly payments and interest rates lowered, and they can save more money. It is not just that; it can also help people grow equity quickly federal-backed initiatives, federal-backed initiatives, which is a long-term method for establishing wealth.
Liked this article? You can find out more by looking at the articles below:
- Top Questions To Ask When Buying A House: A 2021 Guide
- Mortgage Protection Insurance: When Do You Need It?
- How Much Money Can I Borrow For A Mortgage?
Comment below if you have picked up some new learning from this article! Feel free to share if there’s anything we’ve missed!