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Can I Really Refinance My Home Loan That's Upside Down?

Rob lays down the requirements to qualify, including facts about Fannie and Freddie, HARP, renting and how to refinance.

Can I Really Refinance My Home Loan that is Upside Down?

The short answer is maybe. You see, up until now lenders had you in a kind of “catch 22.” If you were upside down on your mortgage (meaning that you owed more than the home would appraise for) but had been making your mortgage payments on time, well you were out of luck.

Why, you might ask? Because the banks did not want to lower your interest rate (and their yield) if you were not in trouble. So then some people missed a few payments (to the detriment of their credit scores) in order to qualify for the HARP1 program (Home Affordable Refinance Program). The problem with that program was that even though the government told lenders they needed to comply with the program, there were no teeth in it to make lenders do the deals. Therefore, practically no lender participated and a number of homeowners became severely delinquent on their mortgages waiting to find out if they qualified, only to find out that they didn’t. Needless to say the HARP1 program was an utter disaster that sounded great in concept.

Now we have HARP2 (or as you may see it referred to as HARP 2.0). This program is actually getting a lot of buy in from lenders across the country, and has a real chance at making an impact for distressed homeowners. In essence, it is a program that allows upside down homeowners that are CURRENT on their mortgage to refinance to today’s historically low interest rates, regardless of what the value of the home has dropped to. In order to better understand the program, I have put together some of the basic information in a way that I hope makes the program easier to digest. As always, if you would like to discuss your specific scenario just give me a call directly (619)928-9762, or drop me an email at robm@summit-mortgage.com   

What are the requirements to qualify?

You must meet all of the following requirements to be eligible to refinance under HARP2:
- Your mortgage must be owned or guaranteed by either Freddie Mac or Fannie Mae;
- You must have closed you current mortgage on or before May 21, 2009;
- You must be current on your home loan;
- You cannot have made a late payment within the past six months;
- You cannot have made more than one late payment in the past 7-12 months;
- Your loan-to-value ratio must be greater than eighty percent; and
- Your loan must fall under the current conforming loan limits.

A conforming loan is one that falls at or below the maximum financeable amount allowed by the FHFA. In general, the maximum amount financed is $417,000. However, in high cost areas (like San Diego County) defined by the FHFA, the maximum amount is $625,500.

How do I know if Fannie Mae or Freddie Mac has my mortgage?

You can call me and I will look it up for you, or you can check both Fannie Mae and Freddie Mac's websites or call their toll-free phone numbers for confirmation (Let me know if you need help with this part):
– Fannie Mae:
- Phone number: 1-800-7FANNIE (8 am to 8 pm ET)
- Website: www.fanniemae.com/loanlookup/
– Freddie Mac:
- Phone number: 1-800-FREDDIE (8 am to 8 pm ET)
- Website: ww3.freddiemac.com/corporate/

I put down 20 percent when I bought my home. My home is now underwater. If I refinance with HARP, will I have to pay mortgage insurance now?

I think one of the biggest benefits to HARP 2.0 is that you are not required to add mortgage insurance if you did not previously have to have it. This really is about saving homeowners money!!

When I looked into getting a HARP1 refinance it was so expensive. Has the cost to refinance through the HARP2 program changed?

Yes, the HARP 2.0 program will lower or even eliminate certain risk-based fees depending on the loan program you refinance into. Unfortunately no matter what loan program you refinance into, you will incur some fees, they'll just be lower than they would've been with the original HARP program

Can I roll in my associated costs and fees into my loan balance?

Yes, this is another one of the big benefits this time around. You can roll in costs and fees associated with your HARP 2.0 refinance into the principal balance of the loan.

Am I required to use my current loan servicer for a HARP 2.0 refinance? What if my loan servicer is not participating in the HARP program?

No, you are not required to use your current loan servicer for your HARP 2.0 refinance. However, you can use any participating HARP program lender to complete your HARP 2.0 refinance.

Can I refinance a home that I no longer live in but currently rent out?

This is HUGE right here and the answer is YES, you can refinance your rental that was once your primary home under the HARP 2 program.

Are all lenders participating in the program?

This is a bit of the bummer side of these programs. Although the creation of HARP 2.0 was supposed to solve many of the concerns lenders had with HARP 1.0, (mainly the lender’s liability on loans that may go into foreclosure), there is still some concerns that Fannie Mae and Freddie Mac may request lenders to repurchase loans that go into foreclose. That is why many lenders are modifying the guidelines to limit their risk. Examples would be that they will limit the “Loan to Value” to 125% or 150% of the current value of your home even though the program is setup to offer unlimited LTVs. In other cases they are requiring a higher credit score than the guidelines require.

Rob McNelis

Helping Santee Homeowners since 1997

For more information, or to further discuss your options, give me a call at (619)928-9762 or email at robm@summit-mortgage.com

walkerzwells April 28, 2012 at 05:35 AM
Before you refinance, check your credit report for anything that could foul up a refinance. You don't want to lay out the money if a credit problem is going to keep you from refinancing, search online for 123 Refinance I just used them and they are the best, they got me 3.113% rate
Daz Paris April 28, 2012 at 07:20 PM
What are the INCOME requirements to qualify FOR harp 2.0 ?
Rob McNelis April 30, 2012 at 10:24 PM
The maximum debt to income ratio is 55% if the new loan will be 105% or less of the appraised value and 45% for all loans over 105% of the appraised value. To figure your ratio, take the total of all of your monthly payments (including what your new mortgage payment would be) and divide that number by your gross monthly income. when calculating this be sure to just use the minimum payment allowed on your monthly statement and not the amount you send in to pay debts down sooner. Hope that helps...
charleszberrios May 01, 2012 at 11:32 AM
Homeowners with an FHA-insured loan may find a conventional mortgage refinance reduces their monthly housing expenditures, best one out there is 123 Refinance
dan May 01, 2012 at 08:24 PM
First Choice Lending was able to help me out with my mortgage. They saved me so much on my monthly payment and they made my loan process so uncomplicated. I would definitely recommend going through First Choice. Go to www.firstchoicemoney.com
Sara Jones May 26, 2012 at 08:09 AM
In today’s market situation, most of the properties are upside down. The property values have drastically reduced compared to the loans taken out by the home owners. Most of the lenders won’t refinance a upside down house. One of the major criteria of mortgage refinancing is to have equity in the property. However, government have taken various steps in order help such borrowers refinance their mortgages. One such option is Home Affordable Refinance Program ( http://www.mortgagefit.com/problems/homeaffordable-refinance.html ). Recently modification to HARP has also taken place there by helping more borrowers to refinance their existing loans.
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Michael Bond September 17, 2012 at 03:19 AM
There is a new program which the bankers have thought through which takes a big slice off of the principal and allows you to refinance with a conventional lender. It is also helpful for short sales and gives the owner an opportunity to walk away with cash and less credit damage. More information is posted at: http://upsidedownmortgage.co.cc
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edy December 27, 2012 at 06:41 AM
We are upside down on our mortgages about 80%. our loan rate is 7% and we are at the point of where if we keep living like this we may only have about 1 or 1/2 years in this house and we have been in this house for 12 years. we don't have Freddie Mac or Fannie Mae, and out Leander say that they can help on lower the % for 6 month only after that will go back to normal. but that wound help. is there any help out there for us?? any advice please
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