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How to Refinance with HARP

What is HARP?

The Home Affordable Refinance Program (HARP) is a federally run refinancing program tailored to aid homeowners out of negative equity. The program strictly focuses on homeowners unable to refinance their existing or current mortgage. The program was brought about three years after the 2006 housing bubble flattened the prices of American homes, causing huge drops in property value, widening the gap between home prices and outstanding balances, and leaving 11.1 million American homeowners unable to refinance.

How HARP Could Help You

Negative equity is when the balance of the mortgage exceeds the appraised value of a home. In practice, this means that the loan-to-value (LTV) ratio of affected homes becomes too high. The houses become too expensive for lenders to cover the cost and for homeowners to recover.

The loan-to-value ratio is found by dividing the appraised home value by the size of the liability (mortgage) put against it. Ideally, the LTV ratio needs to be 80% or less, otherwise, the homeowner either has to have a very good credit score or be obligated to pay for private mortgage insurance (PMI).

The housing bubble left many with an insufferable 125% LTV. Fannie Mae and Freddie Mac regulator, the Federal Housing Finance Agency (FHFA), was prompted at the wake to create HARP to allow homeowners, whose LTV ratios were over 80%, the chance to refinance without private mortgage insurance. At first, only LTV bearers of 105% were allowed entry into the program, but qualification policies were changed a year later to include mortgagors of 125% LTV.

Example on finding the LTV ratio: A family gets a mortgage on a $200,000 house with a $40,000 down payment (20%). The 20% down payment is to bring down the initial LTV ratio to 80%. This is found by subtracting the down payment (40,000) from the home's original appraised value (200,000) to get the new appraised value: $160,000. Then, the home's current appraised value is divided by the loan to find its LTV ratio: 160,000 ÷ 200,000 = 0.8 (80%).

The government's conditions to be eligible for HARP: 

  • Your existing LTV ratio must be more than 80%.
  • Your new mortgage plan needs to be more affordable and secure.
  • On your current mortgage, you should have incurred no more than one late payment in the last 12 months and no late payments at all in the last six.
  • Your current mortgage needs to be sponsored and issued by Fannie Mae or Freddie Mac anytime up to May 31 of 2009.
  • You should have no previous history with HARP's refinancing program unless your mortgage was issued by Fannie Mae between March and May of 2009.


Unsure about some of these mortgage jargon? Consult our comprehensive mortgage glossary to clear any confusion.

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