Refinancing HARP 2 Guidelines
by Lewis in Panama City, Florida, by Chris in Washington, and...
Homeowners ask for refinancing and HARP 2 guidelines: Do HARP loans have prepayment penalties? Are escrow accounts required for paying property taxes and homeowner's insurance? Why can Fannie Mae and Freddie Mac have different guidelines? How important is the amount of available credit? What does "original appraised" value mean?
Question 1: Can I refinance out of my HARP loan? By Lewis in Panama City
Kate, Can I in refinance out of the HARP mortgage? VA has 3/1 hybrid arm at 2.5% and my HARP loan is at 4%. Just wanted to know if there are refinancing restrictions.
Ask Kate answers: Can I refinance out of my HARP loan?
Making Home Affordable allows individual lenders to set their own HARP interest rates and closing costs.
However lenders may not impose a prepayment penalty or balloon payment.
This means that homeowners who have refinanced under the HARP program are free to refinance the mortgage once again, sell the home, or pay off the loan with cash, without incurring a prepayment penalty.
HARP loans require principal and interest payments. This means no balloon payments, one time lump sums due when the loan is paid off.
Keep in mind that financing a second set of closing costs will reduce the equity in your home. Make sure you are going to own the house long enough for the savings from reduced monthly payments to equal the cost spent refinancing.
Here is how Catherine compared the cost of her refinancing
to the savings in the new house payment. Analyze carefully to keep from being swept off your feet by what seems like an attractively low interest rate.
In addition, peruse your loan documents to confirm (for yourself) there is no prepayment penalty. Better safe than sorry!
Question 2: HARP 2 Freddie Mac Refinance and Escrow Accounts
Kate, Are escrow accounts required if your LTV is less than 80% under the new HARP 2 regulations?
Ask Kate answers: HARP 2 Freddie Mac Refinance and Escrow Accounts
I paused at this question and was stumped for a moment! I am so programmed to think maximum loan-to-value! But this has a simple answer, after all.One of the five intial qualifying HARP 2.0 criteria
addresses minimum loan-to-value
. Your LTV must be greater than 80% to be considered for Making Home Affordable Refinance.
So yes, property taxes, homeowners insurance, and mortgage insurance (if you are currently paying PMI) are generally bundled into the monthly house payment.
I have heard some accounts though of asking for and obtaining an escrow waiver if the loan-to-value is less than 90%. If the lender is reluctant, I'd encourage you to decide what you want most from a HARP refinance.
There may be bigger fish to fry than an escrow waiver.
Question 3: Harp 2.0 Denied for High Credit Card Balances By Chris in Washington
Kate, I have a Freddie Mac backed mortgage. I owe $185,000 and the automated appraisal was at 156,000. I was told I am a perfect HARP applicant.
I have never been late on a payment or any credit card payments. My credit scores were in the 690-720 range but I was denied by Freddie Mac because some of my credit cards are over a 50% balance.
I was told that Freddie Mac is doing this but that I would have been approved if I had a Fannie Mae Loan. Any news that Freddie is going to change there lending policies as I feel like I am almost being discriminated against. Thanks, Chris
Ask Kate answers: Harp 2.0 Denied for High Credit Card Balances
Fannie Mae and Freddie Mac are separate entities. So establishing guidelines independent of each other is within their rights.
But I can understand your frustration. You did not make the choice between Fannie Mae or Freddie Mac's backing of your mortgage. Until recently, most borrowers did not give this a second thought.
Ratio of Available Credit to Total Credit
The ratio of available credit to total credit has been a factor in automated underwriting sysytems for many years, especially since credit scoring began.
For example, if you have a $5000 credit line and have charged $2500, you have 50% available credit. The more available credit, the better. This is why many borrowers have received the recommendation to leave credit card accounts open even if they do not intend to use them anymore.
Go here for more details: How to Strengthen Your Credit Score
Question 4: Private Mortgage Insurance and Original Appraised Value
Kate, Where does the "original value" of the house come from on the documents? If it's the appraisal value, how does the lender get it if they don't do a physical appraisal for a HARP refinance?
Ask Kate answers: Private Mortgage Insurance and Original Appraised Value
Original value is a term that refers to the appraised value that was used in approving your current mortgage.
It can be found in the loan file that is in the possession of your loan servicer. Having the loan file, including the appraisal, gives them more flexibility and allows the choice between manually underwriting HARP loans or running them though an automated underwriting system.
Each method has its advantages. Loan servicers can switch back and forth between automated and manual underwriting to find the best deal for homeowners if they so choose.
You may also be interested in more information on getting rid of private mortgage insurance at How Do I Cancel PMI
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