If you have little or no equity in your home, it’s going to be tough to find a traditional lender to refinance your mortgage. If you’re a homeowner in that situation and struggling to make your monthly mortgage payment, you probably feel like you’re drowning.
The good news is there are lifelines that can keep you afloat. Two government programs, the Home Affordable Refinance Program and Home Affordable Modification Program, also known as HARP and HAMP, are meant to help homeowners who might be in danger of losing their homes.
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HARP and HAMP came in response to the U.S. housing crisis, which began in 2007 after the housing bubble burst. A sharp decline in home prices and sales, coupled with the meltdown of the subprime mortgage market, led to approximately 7 million homes being lost to foreclosure since homeownership rates peaked in the second quarter of 2004, according to CoreLogic. Today, more than 4 million U.S. homeowners are still underwater on their mortgages, owing the bank 20% or more than what their homes are currently worth, according to Zillow.
If you’re one of the millions who are still struggling, take heart; you might be eligible to refinance through one of these programs. You’ll have to act fairly fast, though, because they both expire Dec. 31, 2016. Here’s a closer look at the benefits and eligibility requirements for HARP and HAMP:
HARP
Created in 2009, HARP has helped nearly 3.3 million borrowers reduce their monthly payments, according to the Federal Housing Finance Agency, which administers the program. But more than 600,000 people around the country remain eligible, because some major housing markets are still recovering.
The Obama administration rebooted the program in 2011 as HARP 2.0, adding new guidelines that make it simpler and easier to qualify for a refinanced loan. If your home’s value tanked and has not fully recovered and you’re struggling to keep up with payments, HARP can make your payments more affordable.
Ways it can help:
- Lower your mortgage rate, which reduces your out-of-pocket costs each month.
- Shorten your loan term so you can repay your loan in less time.
- Help you switch from an adjustable-rate mortgage to a fixed-rate loan.
- Bundle closing costs into the new loan so you don’t need much cash upfront.
- Requires less paperwork than a traditional refinance, making the application process smoother.
Who’s eligible?
You might qualify if …
- Your loan is owned or backed by Fannie Mae or Freddie Mac.
- You owe more on your mortgage than your house is worth, or your current loan-to-value ratio is over 80%.
- You are current on your mortgage payments.
- You haven’t made a payment more than 30 days late in the past six months and more than one late payment in the past year.
- Your home is your primary residence, a second home or an investment property.
- Your mortgage originated on or before May 31, 2009.
- You applied for HARP refinancing before and were declined. With expanded eligibility, more people are now able to benefit from HARP.
To apply for the HARP program, gather your financial and loan information, such as mortgage statements, including information on a second mortgage (if you have one), recent paystubs and your most recent income tax return. You’ll need this documentation when you speak to your lender. Call your lender to ask about refinancing through HARP, or contact a HARP-approved lender through Fannie Mae or Freddie Mac.
HAMP
When an unexpected event strikes — such as job loss, serious illness or disability, or the death of a spouse/partner — it can become nearly impossible to make your monthly mortgage payment. That’s where HAMP, which modifies your existing loan, comes in. The program gives you breathing room by adjusting the interest rate, extending your loan term or reducing your principal, according to the Department of the Treasury and the Department of Housing and Urban Development, the agencies that administer HAMP.
How it helps:
- Typically saves homeowners about $500 per month.
- Helps with your primary residence or rental property.
- Evaluates you automatically for a principal reduction if you owe significantly more than your home is worth.
- Gives you the chance to reduce your principal by up to $10,000 if you make your payments on time and in full.
Who’s eligible?
You might qualify if …
- You’re struggling to make your mortgage payments due to financial hardship.
- You’re already delinquent or in danger of falling behind on your mortgage.
- You live in a non-recourse state where lenders cannot sue you for deficiencies. (According to the National Consumer Law Center, those states are: Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon and Washington.)
- You obtained your mortgage on or before Jan. 1, 2009.
- Your property has not been condemned.
Applying for the HAMP program will require careful documentation of your hardship and your finances, but you don’t have to navigate the process alone. Experts from a HUD-approved housing counseling agency in your area can walk you through your HAMP application, or call (888) 995-4673 for guidance 24/7.
Keep in mind that 2016 is the final year for you to use HARP and HAMP; these programs won’t be extended again. It may feel difficult or awkward to seek out help when times get tough, but HARP and HAMP are designed for exactly those situations.
Taking advantage of one of these programs can help you weather your current financial storm — and keep you in your home for years to come.
Deborah Kearns is a staff writer at NerdWallet, a personal finance website. Email: dkearns@nerdwallet.com. Twitter: @debbie_kearns.
Image via iStock.
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