The Responsible Homeowner Act of 2012

Have you been eying today’s low refinance rates but don’t have the cash for closing? If you’re underwater in your exiting home loan mortgage refinancing may have been out of reach. The Home Affordable Refinance Program (HARP) promised to help but only if your mortgage was backed by Fannie Mae or Freddie Mac, leaving millions of homeowners out in the cold. Here’s what you need to know about the Responsible Homeowner Act of 2012.

Your Rich Uncle Wants You to Refinance

Sponsored by Senators Barbara Boxer of California and Robert Mendez of New Jersey, the Responsible Homeowner Act (called HARP 2.5 by many) wants to remove any and all barriers to mortgage refinancing. This law aims to eliminate out-of-pocket expenses without taking a higher mortgage rate to get your fees paid by the lender. This legislation takes HARP 2.0 a step further which until now has failed to help underwater homeowners take advantage of today’s low refinance rates.

In order to qualify for mortgage refinancing under the Responsible Homeowner Act you must be current on all of your payments. HARP had the requirement of no late payments during the past six months and a maximum of one late payment during the six months before that period.

The bill essentially allows for a streamline refinance for all home loans backed by Fannie Mae or Freddie Mac, regardless of how underwater you are. The Fannie Freddie requirement is rumored to go away under HARP 3.0; however, this requirement remains for a streamline refinance.

What is a Streamline Refinance?

FHA homeowners have had streamline refinancing available to them all along; essentially, this type of transaction reduces paperwork and fees. There is no need for employment or income verification and your credit score isn’t part of the equation.

The bill wants to increase competition between lenders meaning homeowners will be able to shop for the best refinance rates. Lenders have the option of sending out pre-approval letters to their existing borrowers that will only need to be signed and sent back to get the ball rolling.

This type of streamline refinance eliminates upfront fees at closing and does not require an appraisal. Because the loan-to-value ratio has been eliminated from the program completely having your home appraised is no longer necessary. There are even penalties for lenders that don’t play well with their leans to make sure access to the program is available for everyone. This bill has a long way to go before being signed into law by the president.

HARP 3.0 had been rumored to eliminate the Fannie and Freddie requirement from the equation but we’ve yet to see it.

You can learn more about refinancing your home without paying unnecessary points or junk fees by checking out my free Underground Mortgage Videos.

Don’t Give Up on HARP

If you’re underwater and haven’t been able to refinance under the Home Affordable Refinance Program (HARP), hang in there. HARP 2.0 has been on the books for little over a month and despite eliminating the 125% loan-to-value limit, many underwater homeowners are still being turned away.

Do you meet all of the requirements under HARP 2.0 but find your existing lender still denies your application? This is because most lenders are enforcing their own loan-to-value and credit requirements for approval. Lender participation under the Home Affordable Refinance Program is voluntary so lenders are free to beef up the program requirements as they see fit.

You Don’t Have to Wait for HARP 3.0

Rumor has it that the Senate Finance Committee is meeting with HUD officials on HARP 3.0 legislation and should have a bill by June. How long it will take that legislation to be signed into law is anyone’s guess.

The good news is that you don’t have to stay with your current lender to be approved. If your existing lender turns you down for this government refinance program do a little legwork shopping from the best mortgage lenders and you could be approved.

Some lenders are only approving applications for their existing customers while others are only approving loan-to-value ratios up to 105%. This defeats the purpose of this government refinance program; however, there are lenders out there that do not enforce their own LTV requirements.

Finding banks and lenders to approve your application can be difficult as many of the top mortgage lenders are the ones approving applications for their existing customers.

Brokers & Credit Unions Are Excellent Resources

If you’re finding your application denied by the big-named lenders check out the smaller, community based-credit unions. Many have open membership and offer low origination fees without paying for unnecessary discount points.

Mortgage brokers are also an excellent resource for finding small and mid-sized lenders that are opening their doors to HARP mortgage refinancing. Remember the program guidelines for HARP 2.0 are fairly simple, anyone with a loan-to-value greater than 80% can qualify regardless of income, credit, employment status or if you’re paying for mortgage insurance.

The catch is because lender participation in the Home Affordable Refinance is voluntary for lenders, they can set their own limits for how underwater you are or your income and credit. Just because one lender denies your application doesn’t mean there isn’t one out there that won’t approve you, so don’t get discouraged.

As with any mortgage refinance application if you’re turned away find out why your application was denied. If improving your credit score will get you approved then at least you’ll have something to work on.

Fannie Mae & Freddie Mac Only

HARP 3.0 is rumored to remove the Fannie and Freddie requirement. For now if your home loan isn’t with Fannie Mae or Freddie Mac there’s nothing you can do to qualify for HARP until Congress passes legislation removing this requirement.

Getting your mortgage refinancing application approved can be a frustrating process for any homeowner, government refinance programs doubly so. Don’t get let a lender denial get you down, keep at it and you’ll find your HARP 2.0 or HARP 3.0 application can be approved.

You can learn more about getting the best deal on your next home loan without paying lender junk fees or unnecessary discount points by checking out my free Underground Mortgage Videos.

40 Year Mortgage Mistake

Most people refinancing their homes choose 30-year term lengths without giving a second thought. What about 40-year mortgage loans? If you need the lowest possible payment choosing a longer term will accomplish this for you; however, what happens to your total cost for that extra ten years? Here’s the scoop on 40 year mortgage loans to help you make an informed decision for your next home loan while avoiding common mortgage mistakes.

40 Year Mortgage Loans

If you haven’t run across a 40 year mortgage when shopping for the lowest refinance rates you’re likely to encounter one soon. This is becoming a fairly common offering for mortgage refinancing despite higher refinance rates compared to 15 and 30-year options.

The most common option for your home loan is a 30-year mortgage; however, if you want the best deal for your mortgage dollar 15 and 10-year mortgages offer the greatest savings.

If you’re considering an Adjustable Rate Mortgage also called a hybrid ARM like a 5/1 or 7/1 Adjustable, these home loans typically come with 30 year term lengths. In the case of a 5/1 ARM your interest rate is fixed for the first five years and then adjusts every year for the last 25 years.

Pros & Cons of the 40-Year Mortgage

The main advantage of a 40-year mortgage over the traditional 30-year variety is the lower payment amount since your payments are spread out over the extra ten years. If you’re having trouble qualifying for a 30-year mortgage because of your debt-to-income ratio you could be approved for a 40-year term.

When refinance rate shopping you’ll notice that 40-year mortgages have higher interest rates than 30-year and 15-year mortgages. The reason for this is the longer you’re paying on a home loan, the more risk for the lender. Longer term-lengths come with higher interest rates.

The disadvantage of a 40-year mortgage is the amount of money you’re throwing away for that additional ten years of financing. Also, if you’re refinancing from a 15 or 30-year mortgage to a 40-year term length it’s going to be next to impossible to recoup your out-of-pocket expenses even if your payment is going down because of the financing cost for that extra ten years.

Those extra ten-years of financing also means you’ll build equity in your home at a snail’s pace; in many markets this means you could find yourself under water quickly, meaning you owe more than your home is worth.

If you’re considering a 40-year mortgage because it’s the only option available to you, beware home loans that are amortized as 40-years but due in 30. While the home loan is amortized at 40 years, you only get 30 years to pay it back. After 30 years the balance is due in one lump sum as a balloon payment.

The best advice I can give you when it comes to 40-year mortgages is to avoid them whenever possible. This is pretty much the home loan of last resort if you can’t qualify for anything else. You can learn more about avoiding common mortgage mistakes and getting the best deal for your next home loan by checking out my free Underground Mortgage Videos.

Hybrid ARMs Offer Excellent Savings

Have you been considering mortgage refinancing to take advantage of historically low rates but simply haven’t gotten around to it? Hybrid ARMs are often overlooked as an excellent short-term mortgage option offering substantial savings. Here’s what you need to know about Hybrid ARMs to help you make an informed decision on your next home loan without leaving cash on the table.

What Are Hybrid Adjustable Rate Mortgage Loans?

Hybrid Adjustable Rate Mortgages are considered “hybrid” because they are fixed for an initial period of time before the interest rate and payment starts resetting. Because adjustable mortgage rates are usually quite a bit lower than comparable fixed rate home loans the savings can be substantial.

Hybrid ARMs are often offered as 3/1, 5/1, or 7/1 adjustable rate mortgage loans. The designation means the loan is fixed for the amount of time in the number and will reset based on the second number on the loan’s anniversary date. In the case of a 7/1 ARM, the mortgage is fixed for the first seven years and then resets every year on the anniversary date after that.

The risk with any Adjustable Rate Mortgage loans is that if interest rates, particularly those tied to the LIBOR index in Europe go up, your payment will go up also. (ARM home loans commonly base their interest rates on the LIBOR index) If you refinance at the end of the fixed rate period, provided your Hybrid ARM doesn’t have a prepayment penalty you can save yourself a nice chunk of cash.

How Much Could You Save With a Hybrid ARM?

If you were to choose mortgage refinancing with today’s best mortgage lenders using a 5/1 Hybrid Adjustable Rate Mortgage on a $350,000 home loan at 3.5% your savings (over a fixed rate mortgage) will be $200 a month. Over the fixed rate period of the ARM your savings balloon up to $12,000. As long as your Hybrid Adjustable Rate Mortgage does not have a prepayment penalty you could refinance again or sell at the end of five years. Hybrid ARMS are a popular choice for real-estate investors for this reason.

Avoid Common Mortgage Mistakes

One of the biggest mistakes people make refinancing their homes is focusing on getting the lowest possible refinance rates at the cost of fees. The fees you pay closing on your new home loan make or break the deal you’re getting. If you pay too much for the origination fee or fall for unnecessary discount points it can be difficult, even impossible to recoup your out-of-pocket expenses from mortgage refinancing. If you’re not able to break even on your closing costs before you sell or refinance again you’ll be losing money no matter how low your refinance rates.

You can learn more about avoiding lender junk fees and unnecessary discount points to get the best deal your next home loan by checking out my free Underground Mortgage Videos.

HARP 2.0 Application Denied?

HARP 2.0 is supposed to open the doors to mortgage refinancing for millions of underwater homeowners. What do you do if you meet all the HARP 2.0 qualifications but your lender still denies your application? Here’s what you can do if a lender denies your mortgage refinancing application under HARP 2.0 AND keep you sanity in the process.

HARP 2.0 Disappointing Many

President Obama recently overhauled the Home Affordable Refinance Program allowing for unlimited loan-to-value ratios to get people qualified. The problem is that many homeowners with high loan-to-value ratios are finding their applications are still being denied, a slap in the face from their existing lenders.

What these homeowners are finding is that just because they fall under the program guidelines doesn’t mean the lender will approve the mortgage. If your lender turned your HARP 2.0 application down because of your LTV don’t give up on the program. This only applies to a high loan-to-value ratio, if you’re ineligible because your home loan isn’t with Fannie Mae or Freddie Mac, unfortunately you’re still out of luck.

HARP 2.0 Has Been a Struggle Since Day One

The Home Affordable Refinance Program is supposed to help seven million homeowners in the United States take advantage of today’s low refinance mortgage rates. Unfortunately the program has been flawed since its creation; even with the recent revision many homeowners for which the program was intended are still finding mortgage refinancing out of reach.

Here’s what you need to know if your HARP 2.0 application is denied:

  1. You can be approved by ANY participating program lender…not just your current lender
  2. Private Mortgage Insurance will not prevent approval
  3. Not all of the best mortgage lenders impose loan-to-value requirements

High loan-to-value ratios have been a problem for underwater homeowners since the housing bubble burst and this program was intended to remove this roadblock for those that need the help the most. The problem is that lenders have the option to enforce their own rules and many have set strict loan-to-value limits.

Nearly every one of the country’s mega-banks and put some form of loan-to-value limit on their in-house guidelines. Some are allowing no more than 105 percent LTV, others only up to 125 percent. Lenders like Bank of America have never made a name for themselves as being consumer focused and high LTV mortgages tend have the highest default rates.

What to do if Your Application is Denied

There is good news if you’re an underwater homeowner and your HARP 2.0 application is denied. There are lenders out there don’t impose their own loan-to-value requirements. Community based credit unions can be a gem and are an excellent starting point as these institutions tend to be more member focused and less likely to deny your application.

The most important thing you can do is not get discouraged…keep at it and you’ll find a lender willing to approve your mortgage refinance application.