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Secrets of Government Refinance Loans

02/23/2015

Just as the government has created new programs to help first-time homeowners, there are programs for people interested in refinancing and modifying.

HARP

In 2009, President Obama signed a bill for a new refinance program designed to save homeowners money. Officially known as the “Home Affordable Refinance Program” or HARP, this remains a viable solution yet less than .5 percent of homeowners take advantage of it. For a variety of reasons, few lenders promote HARP, which can save significant money.

This is the final year for HARP but a homeowner has the right to talk to their existing lender or a different lender to learn about qualifications. This program ensures low interest rates and makes the refinance process easy. Of course, there is certain criteria that must be met before a homeowner can be approved for HARP.

The home cannot be at risk for foreclosure and the homeowner cannot have late house payments reported over the past 12 months. In addition, the owner of the loan must be either Freddie Mac or Fannie Mae. Payment history, as well as credit score, lender guidelines, and current home financing are other considerations. Once approval is granted, a borrower can refinance a mortgage loan anywhere from 105 percent to 125 percent of the value of the home.

While not for everyone, HARP has proven to be the right solution for many people. Once approved, monthly payments go down $300 to $400. In many cases, this reduction is the difference between keeping and losing the home.

HAMP

Another well-kept government secret for refinancing is the “Home Affordable Modification Program” or HAMP.  In order to qualify for this loan, a homeowner must show financial hardship whereby the mortgage is in immediate danger of default. In addition, Freddie Mac or Fannie Mae must be the owner of the mortgage or another lender signed up with the US Treasury Department.

Although lenders are granted incentives by the government up to $1,500 for approving a HAMP, the final decision belongs to the lender. While some people consider HAMP a type of refinancing, it is actually a contractual change in which monthly mortgage payments are reduced up to 60 months. During that period, the homeowner has the opportunity to get finances on track, thereby saving the property.

At the beginning of the sixth year, there is a chance that interest will start to increase but never over 1 percentage point a year until at which time it reaches the market rate for the time when preparation of the modification agreement was made. Of course, there are different options for modification such as a current mortgage being amortized, stretching the terms out, lowering the interest rate, or forgiving a portion of the principal balance.

Although HAMP is a great government program, just like HARP, qualification guidelines are extremely strict. The home must be the primary residence, the mortgage cannot be greater than $729,750, difficulty in making payments has to be demonstrated, and the current monthly mortgage payment has to be over 31 percent of the homeowner’s gross income.

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