HARP 2.0 Pros and Cons
The HARP 2.0 Program (Home Affordable Refinance Program) enabled borrowers whose homes are underwater to refinance their mortgage. If your home is underwater, meaning your mortgage balance is greater than the value of your home, it can be virtually impossible to refinance without using a refinance assistance program such as HARP 2.0. HARP 2.0 is designed to help borrowers refinance into more affordable mortgages with lower monthly payments. Key program highlights include no maximum loan-to-value (LTV) ratio or appraisal report requirement, more flexible borrower qualification requirements and no income limit. Program considerations include strict loan requirements that limit program eligibility, loan limits and borrowers must be current on their mortgage. We review the full list of the pros and cons for the HARP 2.0 program below. Borrowers should evaluate both the positives and negatives of HARP 2.0 to determine if it is the right refinance option for them.
HARP 2.0 Pros
No Maximum Loan-to-Value (LTV) Ratio
The HARP 2.0 program does not apply a maximum loan-to-value (LTV) ratio which makes it ideal for home owners who are underwater on their mortgage (loan balance is greater than the value of the property). Many mortgage refinance programs apply a maximum LTV ratio of 97% which means your mortgage amount cannot exceed 97% of the fair market value of your home which makes it impossible for underwater borrowers to refinance, even if they can afford the new monthly mortgage payment. By eliminating the maximum LTV requirement, HARP 2.0 enables more borrowers to refinance their mortgage regardless of their property value. Please note that the no maximum LTV ratio rule only applies if you refinance an owner-occupied property and use fixed rate mortgage. The maximum LTV ratio for non-owner occupied properties or if you refinance into an adjustable rate mortgage (ARM) is 105%.
No Appraisal Report Required
Because the HARP 2.0 program does not use a maximum loan-to-value (LTV) ratio, borrowers may not be required to obtain an appraisal report. In cases where lenders can access a reliable property value estimate from Fannie Mae or Freddie Mac, a new property appraisal report is not usually required. Eliminating the appraisal report saves borrowers hundreds of dollars in closing costs and streamlines the mortgage closing process. For a standard refinance, obtaining an appraisal report can cost $500 or more and add several weeks to the process schedule. If a reliable property value is not accessible through Fannie Mae or Freddie Mac an appraisal report is required. Additionally, please note that some lenders may require an appraisal report even though it is not required according to HARP 2.0 program guidelines.
More Flexible Borrower Qualification Requirements
The HARP 2.0 program guidelines do not apply a minimum credit score or maximum borrower debt-to-income ratio in most cases. This streamlines the application process and enables more borrowers to refinance their mortgage. Not requiring a minimum credit score benefits borrowers who may have experienced credit challenges. Not applying a maximum debt-to-income ratio helps borrowers who may have experienced a drop in their income or increase in monthly debt payments. Not using a debt-to-income ratio also means that lenders may not require borrowers to verify their income. Please note that although HARP 2.0 guidelines do not use a minimum credit score or maximum debt-to-income ratio, some lenders may request your credit report and income verification to meet their internal underwriting guidelines.
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No Borrower Income Limit
The HARP 2.0 program does not apply a limit to how much money borrowers earn. Several other refinance assistance programs use a maximum income limit to determine borrower eligibility. By not using a borrower income limit, HARP 2.0 enables more borrowers to refinance their mortgage, especially if they are underwater on their mortgage but earn a good income.
Applies to Investment Properties
Unlike most mortgage refinance assistance programs, mortgages on investment properties are eligible for the HARP 2.0 Program. The program applies to both owner occupied and non-owner occupied one-to-four unit properties and single unit second or vacation homes.
HARP 2.0 Cons
Program Expired in 2018
HARP 2.0 expired on December 31, 2018 so borrowers can no longer take advantage of the program. Fannie Mae and Freddie Mac replaced HARP 2.0 with the High LTV Refinance Option and the Enhanced Relief Refinance Program, respectively. Both of these programs enable you to refinance if you are underwater on your mortgage.
Strict Loan Requirements Means Most Borrowers Are Ineligible for Program
The strict loan requirements imposed by HARP 2.0 means that most mortgages are not eligible for the program. First, to be eligible for HARP 2.0, your mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac. Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that provide capital to and buy mortgages from lenders. Borrowers do not obtain mortgages directly from Fannie Mae or Freddie Mac but in many cases your mortgage is sold to them. You can contact Fannie Mae or Freddie Mac to determine if they own your loan. Another key eligibility requirement is that your mortgage must have closed on or before May 31, 2009. So if your mortgage closed after May 31, 2009 you are ineligible for HARP 2.0. Finally, under most circumstances you cannot have previously refinanced your mortgage with HARP 2.0 so you cannot use the program multiple times.
Borrower Must Be Current on Mortgage
To qualify for the HARP 2.0 program borrowers must be current on their mortgage and cannot have any missed or late mortgage payments within the six months prior to applying for the loan and no more than one late payment in the past twelve months. In some cases, borrowers looking to refinance their mortgage may be under financial hardship and struggling to make their monthly payments. These borrowers may not be eligible for the program due to a delinquent mortgage or late payments.
Loan Limits
The program limits the size of loan you can obtain through the program. HARP 2.0 uses the conforming loan limit, which puts a cap on your mortgage amount. People who live in more expensive areas of the country may find that the HARP loan limits restrict their refinancing options.
More FREEandCLEAR Resources
Mortgage Refinance Assistance Programs
Review our comprehensive summary of government-backed and conventional mortgage refinance assistance programs, including alternatives HARP 2.0. These programs are designed to help borrowers efficiently and cost-effectively refinance into more affordable and manageable mortgages.
Enhanced Relief Refinance Program Guide
Review detailed information about the Enhanced Relief Refinance Program -- one of the two main programs that replaced HARP 2.0 -- including qualification requirements.
High LTV Refinance Option Program Guide
Our High LTV Refinance Option Guide provides comprehensive information on the other program that replaced HARP and covers key topics such a eligibility guidelines and how to apply.
Mortgage Rates
Refinance assistance programs are provided by traditional lenders such as banks, mortgage banks, mortgage brokers and credit unions. Even if your current lender offers these programs you are not obligated to work with that lender when you refinance and you should shop mortgages to find the loan with the best terms. Comparing rates from multiple lenders is the best way to save money on your mortgage. Use our rate table to review updated interest rates and fees for lenders in your area.
Sources
"Home Affordable Refinance Program (HARP)." Publication 881. Freddie Mac, September 2017. Web.