After the great recession of 2008, homeowners owed more on their mortgages than their properties’ values. The decline in real estate values has progressed since 2006 and continued to decline until reaching the peak in 2008. Many states experienced the recession gradually while for others it happened abruptly. Since then, homeowners have been looking for the best property financing tips and other methods to refinance their mortgages.
What is the Home Affordable Refinance Program (HARP)?
HARP is a program initiated by the Federal Housing Finance Agency in 2009 to help homeowners refinance their mortgages. The program was extended multiple times until December 2018. The program is designed to help owners who are current on their mortgage payments but have fallen underwater due to the housing bubble burst in 2008.
Related: Investment Property Loan Providers: What Are Your Best Options?
Who qualifies for The Home Affordable Refinance Program?
HARP was initiated by the Federal Housing Agency to help homeowners whose properties’ values had plummeted during the crash. The list below contains the general qualifications for a HARP loan:
Loan to value ratio (LTV)
This term represents the ratio between the loan taken to finance the purchase to the value of the property at the time of the purchase. In order to qualify for a HARP loan, you must have a loan-to-value ratio greater than 80%. As an example, when a homeowner took a mortgage of $180,000 while the property was valued at $250,000, the loan-to-value ratio of the property is 72%. In this scenario, the owner does not qualify for a HARP loan.
The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
The mortgage needs to be owned by the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage Association (Fannie Mae) as most homeowners are unaware of the connection between such organizations and their mortgages. Such organizations don’t deal with the public and usually use other organizations as the face of their operations. In this case, a homeowner can check if his/her property is financed through any of them on the web for free.
The homeowner must be current on his/her mortgage.
Buying a property may seem easy in general, but when looking into the details homeowners will find themselves unable to keep up with the expenses- whether maintenance costs or property taxes. The best property financing tips anyone can give you are to be current with your mortgage and to never have late payments. If a homeowner wishes to benefit from HARP, the mortgage payments are expected to have no late payments in the past six months and no more than one late payment in the last 12 months.
The property is the primary residence or a second home, or up to 4 units investment property.
This helps real estate investors and homeowners benefit from HARP. The mortgage can be for a primary residence or a second home or an investment property if the loan was instigated on or before May 31, 2009.
Property financing tips with HARP
Homeowners and rental property owners are considered real estate investors; they must be experts at financing real estate in order to prevent losses and ensure maximum profitability of their investment properties. The following are property financing tips to explore before applying for HARP:
Factor in closing costs
Harp offers may seem like a dream come true for both homeowners and real estate investors alike. However, one of the most important property financing tips that experienced real estate investors can give is to factor in closing costs. Closing costs on the mortgage may be high enough for you to reconsider. Before finalizing the refinance of your mortgage, make sure you are fully aware of the closing costs as they may result in you having to pay a hefty monthly payment, even if you are benefiting from lowered mortgage interest rates. Make sure you find a lender that can give you the right terms to refinance your mortgage.
Related: Breaking Down Real Estate Fees: What are The Types of Closing Costs of Investing?
Calculate the extra payments within your budget
If an experienced real estate investor is to give a young homeowner or a real estate investor advice, the best property financing tips he/she can give you is to make sure that your calculation encompasses every little expense and payment that you will have to make. It’s true that HARP offers low mortgage interest rates, but this still means that a homeowner or a real estate investor must budget in order to have the required yearly or monthly payment for the mortgage. HARP loans, just like any other loans, will require you to come up with payments, so you must make room for the payments within your other expenses. Make sure there’s money set aside for the loan every week or every month.
Make payments on time
This is one of the essential property financing tips. Making payments on time makes you a more desired borrower. Note that in order to qualify for the HARP loan, you will need to be punctual with your payments for the past six months. If you have had any late payments, it will affect your credit score tremendously.
Related: How Can You Improve Your Credit Score for Financing Investment Properties?
Private Mortgage Insurance (PMI)
Before 2008, a home buyer may not have given a second thought to private mortgage insurance. It is an insurance policy issued to protect the lender against loss if the borrower of the loan defaults. This is mainly the case when the homeowner does not provide a down payment of 20% for the financing of the real estate. In December 2011, HARP was made to include homeowners with private mortgage insurance. HARP 2.0 allows homeowners to refinance their mortgages through any lender, not necessarily the original lender. This has resulted because HARP required homeowners to have the same level of insurance as the original PMI plan. A homeowner must find the right lender to reap the benefits of HARP.
Related: Why You Shouldn’t Put Less Than 20% Down Payment
Make sure to use the appraisal waiver
One of the property financing tips that we highly recommend utilizing when refinancing through HARP is appraisals. If an investor is trying to buy real estate property, or a homeowner is trying to refinance his mortgage, the role of a property appraisal is essential. An appraisal is the opinion of an unbiased professional in what the property’s value is worth. This is very important as it helps real estate investors know the value of the property they are about to purchase. HARP loan applicants don’t have to get an appraisal if they can use an automated valuation model instead. This can save homeowners and real estate investors a lot as the process can be costly.
To conclude, a real estate investor or a home buyer can find a lot of information online on how to buy real estate and many other property financing tips. On the other side, HARP helps homeowners and real estate investors who have already bought the property through financing a mortgage and have suffered due to the bubble burst in 2008. A real estate investor must always weigh the options and find the best solutions to his/her problem.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.