If you’re struggling to make your monthly mortgage payment, you probably feel like you’re drowning. There are two lifelines available to you. The Home Affordable Refinance Program and Home Affordable Modification Program, also known as the HARP loan and HAMP, provide relief to homeowners who might be in danger of losing their homes.
You might be eligible to refinance through one of these programs. While HAMP expires Dec. 31, 2016, HARP was just extended through Sept. 30, 2017. Here’s a closer look at the benefits and eligibility requirements for HARP and HAMP.
What is a HARP loan?
Created in 2009, the HARP loan has helped nearly 3.3 million borrowers reduce their monthly payments, according to the Federal Housing Finance Agency, which administers the program.
Ways a HARP loan can help:
- Shortens your loan term.
- Transfers from an adjustable-rate mortgage to a fixed-rate loan.
- Bundles closing costs into the new loan.
- Requires less paperwork than a traditional refinance, making the application process smoother.
You might qualify if …
- Your loan is owned or backed by Fannie Mae or Freddie Mac.
- You owe more on your mortgage than your house is worth, or your current loan-to-value ratio is over 80%.
- You are current on your mortgage payments.
- You haven’t made a payment more than 30 days late in the past six months and more than one late payment in the past year.
- Your home is your primary residence, a second home or an investment property.
- Your mortgage originated on or before May 31, 2009.
- You applied for a HARP loan before and were declined. With expanded eligibility, more people are now able to benefit from HARP.
To apply for a HARP loan, gather your financial and loan information, such as mortgage statements, including information on a second mortgage (if you have one), recent paystubs and your most recent income tax return. You’ll need this documentation when you speak to your lender. Call your lender to ask about refinancing through HARP, or contact a HARP-approved lender through Fannie Mae or Freddie Mac.
What is HAMP?
When an unexpected event strikes — such as job loss, serious illness or disability, or the death of a spouse/partner — it can become nearly impossible to make your monthly mortgage payment. That’s where HAMP, which modifies your existing loan, comes in. The program gives you breathing room by adjusting the interest rate, extending your loan term or reducing your principal, according to the Department of the Treasury and the Department of Housing and Urban Development, the agencies that administer HAMP.
Homeowners Assistance Programs by Government
Pre-applications for the Sandy Home buyer Assistance Program have far exceeded our available funds.
To best assist you please be sure to include the following in your email:
1) Full Name of All Applicants
2) County of Current Residence
3) Date Full Application was submitted to the Housing Counselor
Due to a high volume of inquires please allow up to 5 business days for an email response from one of our Sandy Homebuyer Assistance Representative.
This program is made possible with funding from the U.S. Department of Housing and Urban Development (HUD) through its Community Development Block Grant Disaster Recovery Program. The Sandy Homebuyer Assistance Program fund is being administered by the New Jersey Housing and Mortgage Finance Agency (HMFA). HMFA is a self-sufficient agency of state government that is dedicated to offering New Jersey residents affordable and accessible housing. HMFA receives no state appropriation.
Program to Help Buying a Home with Bad Credit
Credit missteps diminish your credit and your options for financing a home purchase, but there are programs available through the government to help you buy a home if your credit isn’t good. The backing of the Government allows private lenders to finance the more riskier borrowers because the government promises to cover lenders’ losses if borrowers default. To obtain such financing, you must meet specific income and asset requirements, and the property you’re purchasing must meet lender standards for collateral.
What Is Bad Credit?
Mortgage lenders use your credit score to determine loan eligibility. They choose the middle of three scores provided by the three main consumer credit reporting agencies, or bureaus: Experian, Equifax and TransUnion. The credit scores used by the agencies are called FICO scores, which range between 300 and 850, and lenders generally consider a score in the low 600s a bad score. A bad individual credit score affects loan eligibility and the loan’s interest rate, and may impact a government program’s down payment requirement. In the case of co-borrowers, the lender bases it decisions on the weaker borrower’s credit.
A Variety of Government-Backed Loans
Government-guaranteed loans have helped borrowers with less-than-perfect credit obtain affordable home financing for many decades. The Federal Housing Administration – the predecessor to the Department of Housing and Urban Development, and now part of that department – established a mortgage insurance program to help borrowers after the Great Depression. The Department of Veterans Affairs guarantees loans for veterans, active-duty military, and certain surviving spouses of veterans. VA loan candidates must meet specific requirements for length and type of service. The Department of Agriculture finances loans for rural housing or homes designated as “outside a major metropolitan area, ” according to USDALoans.com.
Varying Credit Standards
The FHA, VA and USDA have distinct credit guidelines. For example, the FHA requires a 580 score for its minimum down payment requirement of 3.5 percent, and borrowers with scores between 500 and 579 must put down 10 percent. VA and USDA loans have no minimum down payment requirement, regardless of credit scores. The lenders may set stricter credit score standards than the government agency backing their loans. For example, as of 2013, most USDA and FHA lenders require a minimum 640 score, and VA lenders typically require at least a 620 score.
All in The Past
In addition to making you wait for one to three years after a bankruptcy or foreclosure before applying, lenders ensure that you have recovered from financial hardship. Compensating factors for bad credit include substantial cash reserves, debt payoffs, and an overall ability to manage your finances, as determined by the loan underwriter.
Mortgage Insurance USA
Coming up with the down payment is a common challenge for many prospective home buyers. Many loan programs require minimum 20% down payments, so some borrowers find home ownership unaffordable.
Whether it’s called “private mortgage insurance” (PMI) or just “mortgage insurance” (MI), mortgage insurance is a policy that protects the lender if you default on your loan. Don’t confuse PMI with credit life insurance. Mortgage insurance won’t pay your mortgage each month should you become disabled, unemployed, or deceased, and pays nothing to you or any of your beneficiaries.
PMI protects the lender on most nongovernment loan programs and, in most cases, a down payment of less than 20% requires PMI at an extra cost (monthly premium).
For loans directly backed by the government, such as FHA loans, all borrowers must pay into a self-insuring mortgage insurance pool to offset costs associated with other borrowers’ defaults. While the FHA version is more like an annual-premium policy, paid at the time of closing, the up-front cost can be financed into the loan amount (which makes it tax-deductible).
For others government-backed loans, such as VA or USDA-backed loans, the government covers the risks of default, so MI policies are not required.
Mortgage insurance costs vary, depending on the down payment and the type of loan.
Lenders typically require mortgage insurance on loans in which the borrower makes an initial down payment of less than 20%. Simply put, MI allows a buyer to put less money down in exchange for a monthly premium. With FHA loans, borrowers can put down as little as 3.5% of a home’s appraised value with the help of MI.
Mortgage insurance comes at a high price, however. A buyer who makes a 5% down payment and takes out a $200, 000 mortgage could pay about $156 per month or $1, 872 a year in MI.
Mortgage insurance typically can be cancelled once your loan is paid down to a certain percent of the value (LTV). Exceptions exist, however. The mortgage insurance on FHA loans with case numbers assigned after June 3, 2013 can last as long as you have the loan.
Two factors work in your favor when it comes to building enough equity to cancel your mortgage insurance:
- Amortization – the process of paying off your mortgage
- Appreciation – the increase in the value of your home over time
Before you commit to paying mortgage insurance, find out the requirements for cancellation from your lender. Your loan documents should include a PMI disclosure form that explains the details of the policy.
Refinance Your Way Out of MI
If you are considering refinancing, you should make sure the savings outweigh the costs. Remember, refinancing often comes with closing costs, appraisals, title searches, and underwriting fees.
If you have a current FHA loan, refinancing to remove your mortgage insurance could lower your monthly payment, even if the new loan’s interest rate is a little higher.