There are two government programs that can help. One is called HARP (Home Affordable Refinance Program), the other called HAMP (Home Affordable Modification Program).
Interest rates are at an historic low, but many homeowners find they cannot refinance because the value of their home has dropped to low and they don’t meet the equity requirements. If you are not late on your payments, HARP is the simplest way to refinance.
If you are already late or facing foreclosure due to hardship such as drop in income, and you qualify, HAMP can delay foreclosure while you are evaluated. If you are accepted, your monthly payment could be reduced to an amount that would allow you to make the payments.
HAMP was designed to let homeowners avoid foreclosure by subsidizing mortgage lenders’ modifications to borrowers’ home loans. To qualify for a HAMP modification, you must:
- Use the home as your primary residence
- Have a mortgage less than or equal to $729,750
- Have gotten your mortgage before January 1, 2009
- Have a housing payment including principal, interest, property taxes, HOA dues, and insurance that exceeds 31% of your gross (before tax) monthly income
- Have a documentable hardship — either a significant reduction in income or increase in expenses that was beyond your control
- Have a stable source of income sufficient to make a modified payment
You’ll have to document your income, debts, assets, and hardship before you can get a trial modification, and ultimately a permanent one. The average modification under this program saves homeowners about $500 a month.
HARP was created to let creditworthy homeowners who are underwater (mortgage is greater than home’s value) on their mortgages refinance to the lowest available mortgage rates. You don’t have to be cash-strapped or at risk for foreclosure. To qualify for HARP, you must:
- Own a one- to four-unit home
- Have a mortgage that is owned or guaranteed by Fannie Mae or Freddie Mac
- Have no late mortgage payments (more than 30 days late) in the last 12 months
- Owe no more than 125% of the value of your home (on the first mortgage; combined loan-to-value ratio can be higher — only first mortgage is refinanced).
If you meet these criteria, contact your loan servicer about a HARP refinance. Only a servicer can tell you if you’re eligible, but you can go to any Fannie Mae or Freddie Mac lender for your refinance. However, if your application does not get approved from an automated underwriting service, you have to get your refinance from your current servicer. In addition, using a different lender from your current one may make it difficult or impossible to get mortgage insurance coverage. If you have a second mortgage, you can still refinance a first mortgage of up to 125% of your home’s value — as long as the holder of the second lien agrees to subordinate it again to the new first mortgage.