What Is a HARP Loan?

Do you owe more to your house than it’s worth? Having negative equity in your home can be disheartening. After all, you have worked so hard to have a place of your own, and then you feel like your payments aren’t even going anywhere.

Oftentimes, people end up in these situations due to high interest rates on their home loans.

Previously, the solution that many Americans took advantage of to get out from under their high interest rate was applying for a HARP loan. The HARP loan, or home affordable refinance program loan, began in 2009 after home values decreased during the 2008 recession.

The HARP loan allowed homeowners to refinance their homes at lower interest rates, making their mortgage payments more affordable and getting them out underwater. Though the program ended in 2018, more than 3.4 million Americans took advantage of the HARP loan while it was in existence. You can learn more about the history of the HARP loan here.

Eligibility for a HARP loan

The HARP loan was targeted at homeowners that had a loan-to-value ratio of at least 80%. These homeowners had a hard time finding traditional refinancing because of the lack of equity in their home. Traditional refinancing options have various requirements, but most of them require you to have at least some kind of equity. HARP allowed homeowners to circumvent this requirement.

Though homeowners didn’t have to have equity in their home, there were some other requirements to qualify, including:

• Having a Freddie Mac or Fannie Mae mortgage that closed on or before May 31, 2009
• The original loan must have had a loan-to-value (LTV) ratio of at least 80%
• The borrower could not be delinquent on their mortgage payments with limits to one late payment in the previous 12 months, and none in the past six months

Surprisingly, there was no minimum credit score required. These requirements made it easy for this loan to help millions of Americans and were a lifesaver for many until its ending.

Why and how did the HARP program end?

The HARP program was supposed to end in 2016 but was extended through 2018, where it expired on December 31st. The main reason for it to come to an end was that fewer and fewer people nationwide qualified for the program.

During 2018, before the HARP program expired, it was estimated that fewer than 38,000 homeowners qualified. Those homeowners only resided in 10 states. With not enough people who needed assistance, there was no longer a need for the HARP program.

Of course, things have changed since 2018, and with those changes, new programs have replaced HARP.

Programs that replaced the HARP loan

1. Fannie Mae High LTV Refinance Option (HIRO)

The Fannie Mae High LTV Refinance Option, or HIRO, provides refinancing to existing Fannie Mae mortgagers who are paying on time but have a high loan to value ratio that doesn’t qualify for traditional refinancing options. Fannie Mae requires that the borrowers must benefit from the refinancing by either:

• Reduced principle and interest payments
• Shorter amortization term
• Lower interest rate
• A more stable loan such as moving from adjustable to fixed-rate interest rates

Features of this program include:

• Transferable mortgage insurance
• Simplified documentation requirements for easier application
• Various underwriter options

How to qualify for HIRO

In addition to being in a high LTV situation, there are a few other requirements for the HIRO loan, including:

• Having an existing Fannie Mae mortgage closed on or after October 1st, 2017.
• The loan must be 15 months old.
• Current with their payments with no 30-day late payments in the most recent six months, and no more than one 30-day late payment in the past 12 months. Any history of payments more than 30 days late will disqualify you.
• The mortgage must not have been previously delivered as a DU Refi Plus™ or Refi Plus™ mortgage.

Interestingly, the mortgage may be refinanced more than once under this program as long as all the requirements are still met.

Freddie Mac Enhanced Relief Refinance Mortgage (FMERR)

Like the HIRO loan, the Freddie Mac Enhanced Relief Refinance Mortgage, or FMERR, offers a refinancing option for existing Freddie Mac mortgagers who are on time with their payments but have a high LTV ratio that doesn’t qualify for traditional refinancing options.

Features of this program include:

• Conventional 15-, 20-, or 30-year fixed-rate mortgage are eligible
• No program expiration date
• All occupancy types are eligible
• Lenders do not have to comply with standard waiting periods after derogatory events.

How to qualify for FMERR?

In addition to the loan being a pre-existing Freddie Mac mortgage, you must have these qualifications:

• It must be seasoned for at least 15 months.
• For adjustable-rate mortgages, the maximum loan to value ratio is 105%
• You must have applied for your mortgage after November 1, 2018

HARP vs. the alternatives

Though it seems that these alternatives have similar requirements as the HARP loan, there are actually a few differences. For one, HARP was only able to be used once. These programs can be used for an unlimited amount of time. However, keep in mind that you will not be eligible for either of these programs if you have used HARP.

In addition, the loan age requirement didn’t exist with the HARP loan. With HIRO and FMERR, the loan must be at least 15 months old. The age requirement is actually a good thing because it prevents loan churning. Loan churning is when a lender encourages multiple refinances to make more money, which isn’t always in the borrower’s best interest.

Similar to HARP, there are no LTV maximums for HIRO or FMERR. Though these alternatives are more based on the LTV ratio and have different minimums.

How to apply for HIRO or FMERR?

There is a relatively easy process to apply to HIRO and FMERR. However, you’ll want to make sure you prepare and do your research. Here are our recommended steps to applying:

1. First, contact the home-buying and refinancing specialists at Hero Home Program. They will be able to either
   • Assist you directly or
   • Refer you to a vendor who offers discounted rates for the following steps.
2. Determine if your loan is Fannie Mae or Freddie Mac. You can do this by looking at your loan paperwork or by using the loan lookup tool on each of their websites.
3. Get an appraisal of how much your home is worth.
4. Determine how much you owe on the house through your lender
5. Calculate your LTV.
6. Use the HIRO and FMERR eligibility guides to determine if you qualify based on your LTV.

HIRO and FMERR are great alternatives to HARP

Overall, HIRO and FMERR are great alternatives to HARP. They provide an opportunity for those who normally wouldn’t qualify for refinancing a way out from negative equity. If these programs sound like something you would like to learn more about, reach out today.

Original post here: What Is a HARP Loan?

How to Make an Offer on a House

Making your first offer on the house can be intimidating and even a little bit scary. The process doesn’t have to be either of those things, though. Making an offer on a house can be boiled down to a few easy steps. Let’s examine them.

The process of making an offer

Before ever making an offer, you should have already taken a few steps. The first step is getting a pre-approval to know how much house you can afford and make the offer process go smoother. After your pre-approval, you should find the right house in your pre-approval budget. Additionally, you should have a real estate agent to help you through this process.

Once you are ready, you will take the following steps:

1. Determine what you are willing to offer for the house.
2. Set contingencies.
3. Decide how much earnest money to offer.
4. Write and send an offer letter.

What is the house worth to you?

The first step is determining how much you are willing to offer. How much is the house worth to you? You might have a price point in mind, but be careful not to choose a random number.

There are several factors that go into choosing the price. Some of those factors are:

• Home considerations - Does the house need renovations or repairs? What is the price of similar homes in the area? Is there any competition for this particular home?
• Budget considerations - Consider how much you can comfortably afford. Don’t use the amount that’s listed on your mortgage pre-approval for this amount. Consider the monthly payment that you’d like to pay.
• Market considerations - Your real estate agent should be able to provide you with a comparative market analysis that will tell you whether or not the current market is a buyer’s or seller’s market. Which type of market is currently dominating will determine how much you offer.

When will you walk away?

The next step in making an offer is setting contingencies. Contingencies are reasons you can walk away with your earnest money (money similar to a deposit). These contingencies can often include reasons such as financing and appraisal.

It’s important when making an offer on a home not to put too many contingencies into the offer. If you do put too many contingencies in the offer, it could cost you the house due to the number of obstacles.

Additionally, make sure that you always set a contingency on a home inspection. If a major defect in the house shows up during inspection, your earnest money will be safe.

What is earnest money and how can it help your offer?

If you read our blog “What Is A Good Faith Deposit,” earnest money is similar to a deposit put in escrow to show good faith that the buyer wants to buy the home.

Earnest money can help your offer stand out among other offers because it shows that a buyer is willing to invest some of their own money into purchasing the home. The money is similar to a deposit and is kept in escrow. The buyer may keep their deposit if a contingency is met, but otherwise, the money usually goes towards the home’s down payment.

Why is an offer letter important?

An offer letter contains all of the important parts of making an offer. The letter should be drafted by your real estate agent and should contain the following:

• The new home address
• Names of any adults that will be on the title
• Your offer price
• Your contingencies
• Concessions you’re asking for such as closing costs or repairs
• Anything else you want to be included in the sale. These can include lighting fixtures, window treatments, etc.
• Your earnest money deposit
• Your mortgage pre-approval letter
• The date for expected closing
• The date you want to move in
• A deadline for responding to the offer

How to make your offer stand out

No matter the offer, it’s important that it stands apart from the rest, particularly if this home is your dream home. You wouldn’t want to lose out on it because the offer didn’t catch the seller’s eye.

1. Make the highest bid first.
   Make the highest bid before anyone else can beat you there. Be sure not to submit a “lowball” price because that may be flat-out rejected. Your strongest offer should be the first offer you make.
2. Put down as much as you can.
   Show you are serious about buying the home by making a large down-payment. The larger the down-payment on the home and the larger the earnest money deposit, the more serious you look to a seller.
3. Offer to close quickly.
   Most sellers are on a timeline of their own and time can be even more important than money. Offer to close quickly and meet the sellers’ timeline and you will have an offer that will appeal.
4. Don’t take too long for the inspection. Better yet, include an as-is home inspection contingency.
   An as-is home inspection contingency takes the stress off of the seller because it allows them to sell the house without making repairs. The buyer would still have a contingency allowing them to back out of the offer if the home inspection revealed something they couldn’t live with.

Making an offer on the house starts here.

Making an offer on the house can be a simple process, provided you have a few things underway first. Make sure you are preapproved for a loan and hire a real estate agent. Ensure the agent is a buyers’ agent because they will advocate for you and handle the bulk of the offer letter.

You can make an offer stand out by being sure that it is strong followed by earnest money and few contingencies. You can strengthen it even further by working on the sellers’ timeline and making sure inspection doesn’t take too long.

If you are ready to make an offer on a home, reach out to the specialists at Hero Home Programs. They will work hard to find local and federal grants and rebates and can save homebuyers thousands of dollars with their local home buying vendors.

Original post here: How to Make an Offer on a House

Understanding LP and DU Mortgage

Every time a potential home buyer decides they are ready to purchase a new home, they must go through the process of qualifying for a loan. The qualification process can be complex and difficult to understand. To understand these complex terms, let’s discuss what automated approval is and why it’s so important.

The “Automated Approval” process

Automated Approval is the process by which a lender determines that a home buyer is eligible for the home they want to purchase. The automated underwriting system, or AUS, that the lender submits the loan paperwork to uses a specific set of criteria to determine a home buyer’s eligibility.

If the AUS determines a prospective buyer is eligible, they are considered approved, which is the first step in securing a loan. However, if the AUS determines the home buyer is ineligible because they don’t meet the criteria for automated approval, the loan must be manually underwritten.

Manual underwriting is done by an underwriter who carefully looks over all the paperwork and checks to see if the buyer meets the lender’s criteria. The process is arduous and takes time. It’s critical that the information given to the underwriter is complete and accurate.

LP vs. DU mortgage

To support more home buyers’ desire to purchase homes, congress backed two organizations known as Fannie Mae and Freddie Mac. They buy mortgages, combine them, and sell them as mortgage-backed securities. This process frees up the lender’s capital so they can then lend money to more home buyers.

Fannie Mae uses the automated underwriting system called Desktop Underwriter or DU, while Freddie Mac uses the AUS called Loan Prospector or LP. Both of these systems do similar functions. They are the systems that lenders submit a home buyer’s information to for automatic approval.

Applying for LP or DU mortgages

The process for applying for and obtaining an LP or DU mortgage can seem complex and overwhelming, so we’re going to break it down so that it’s easier to understand.

Criteria and Guidelines

All loans underwritten through Fannie Mae and Freddie Mac must follow certain criteria and guidelines.

1. Debt to Income Ratio (DTI) - DTI takes into consideration a buyer’s current debt and gross income. The sum of their debt is divided by their gross income to create a ratio or percentage. Debts figured into this ratio include credit card debt, other loans, mortgages, etc.
2. Required reserves - Loans require a buyer to have a certain amount of money in the bank to cover all of their expenses. This money is referred to as a reserve. The amount required is dependent on the buyer’s credit, DTI and LTV.
3. Loan-to-Value (LTV) - LTV is determined by the house’s appraised value and the loan amount being asked for. If the LTV is higher than 80%, the buyer may have to pay for PMI or private mortgage insurance until the LTV is lower than 80%. LTV can be lowered by paying a higher down payment.
4. Credit score and profile - A credit report will show the bank whether or not a buyer has any delinquencies or outstanding debts. Additionally, it will show a credit score, which shows a lender how risky lending to the buyer will be.
5. Collateral - Collateral is an asset that can be used to secure a loan. In the case of a mortgage, the collateral is usually the house that is being purchased.

Requirements

1. Tax returns - Lenders use tax returns to determine whether your reported income is accurate.
2. Proof of income - Proof of income is usually two years of W-2’s unless the buyer is self-employed or owns a business. Some ways of showing income for a self-employed buyer include profit and loss statements, 1099 documents, and direct deposits.
3. Bank statements - These provide information about how much money buyers have in their reserves and how long they’ve been saving money for a down payment.
4. Credit history - The lender will need to pull the buyers’ credit report to determine whether or not there are any delinquencies and to verify debts.
5. Rental history - At least one year of rental history showing on-time payments.

How does a DU or LP mortgage work?

The first step to obtaining an LP or DU mortgage is to begin the application with a loan officer. The loan officer will collect information from the potential home buyer. From there, the information is put into a loan origination system, which then submits the information to one of the underwriting systems.

The AUS will review all of the documents and determine whether or not they meet the guidelines set forth by Fannie Mae or Freddie Mac. If they do meet the guidelines, the loan will be automatically approved. If automatically approved, the loan officer will submit the loan for underwriting and will submit the buyer’s documentation along with the loan.

The mortgage underwriter will then submit the information to the AUS again. Depending on what the AUS says, the mortgage underwriter will issue conditions. Once the buyer meets the conditions required, the loan can begin to close.

Should I get an LP or a DU mortgage?

Unless a buyer has the money to purchase a home outright, they should generally get an LP or DU mortgage. Remember that if a buyer doesn’t qualify for an LP or DU mortgage, they will have to go through the process of manual underwriting. This process is lengthy and documents are scrutinized more heavily. It’s easier to qualify for a mortgage with LP or DU.

From beginning to end, an LP or DU mortgage is about purchasing a home with a buyer having a low risk of defaulting on their loan. The loan officers and the underwriters use specific criteria set forth to minimize that risk. The home buyer submits their documentation, it’s processed through LP or DU, and then, if automatically approved, the buyer is one step closer to buying their home!

If you are ready to start the process and qualify for a DU or LP mortgage, reach out to the home buying experts at Hero Home Programs. They specialize in helping homebuyers save thousands of dollars with local vendors, grants, and rebates. They want to see you in the home of your dream and they work hard to help you fulfill that dream.

Original post here: Understanding LP and DU Mortgage