Making Home Affordable: The Refinance Option

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By: Donna Fuscaldo
Published: December 04, 2009

The Making Home Affordable program offers financially stable homeowners the chance to refinance mortgages to lower rates.

Making Home Affordable, the federal program aimed at aiding struggling homeowners, offers two options: refinancing and loan modification. An otherwise financially stable homeowner who can’t secure a lower rate on a mortgage because property values have fallen could benefit from the refinancing option.

Don’t expect to breeze through the Making Home Affordable qualifying process. You’ll need a lot of documentation and patience. With so many homeowners looking for help, lenders are scrambling to keep up with demand. Have all your paperwork in order before applying for a refinance to speed up the process.

Qualifying for making home affordable

Making Home Affordable’s refinancing option ( is known as the Home Affordable Refinance program, or HARP. It’s designed for homeowners who, although keeping up with payments, are prevented from refinancing their mortgages to lower rates due to declining home values. HARP might be right for you if your rate is above-market and your current mortgage amount is near or more than what your house is worth.

You need to be current on your mortgage payments to qualify, and have good credit and income. Contact your mortgage lender to apply. If you’re behind on your mortgage payments and running the risk of foreclosure, instead look into Making Home Affordable’s loan modification option (

Keep in mind that to be eligible for HARP, your primary mortgage–alternatively called a first lien–can’t exceed 125% of the current value of your home. That means if your house is worth $200,000, for example, you can’t owe more than $250,000 on your mortgage. The mortgage also must be guaranteed by Fannie Mae or Freddie Mac. To find out if yours is, call Fannie Mae at 1-800-7FANNIE or Freddie Mac at 1-800-FREDDIE, or contact your lender.

Does refinancing make sense for you?

According to Bob Walters, chief economist at Quicken Loans, HARP makes sense if you owe more than your house is worth. HARP interest rates aren’t subsidized; they’re based on current rates. The real benefit of the program is gaining approval for a refinancing when you otherwise wouldn’t. As a rule of thumb, for fixed-rate mortgages you’ll want your new rate to be at least a half-point better than your old one.

HARP might also make sense if you can convert an adjustable-rate mortgage to a fixed-rate mortgage. Even if the ARM’s monthly payment is lower now, it’ll likely shoot up once the introductory rate expires. A predictable fixed-rate mortgage is usually better, especially if you plan to remain in your home for several years.

When applying for HARP, you’ll need to gather pay stubs, tax returns, mortgage statements, account balances, and debt totals (for credit cards, student loans, car loans, and such). You’ll also need to provide details about any second mortgages or home equity lines of credit. A refinancing under HARP must be completed by June 10, 2010.

Lowering your interest can pay off immediately. Let’s say you took out a 30-year fixed-rate mortgage three years ago for $250,000. The rate was 7%. By refinancing to a similar mortgage at 5.5%, you’d lower your monthly payment by about $290. Pay attention to the fees associated with the refinancing, which the lender must disclose up front, and ask if those costs can be rolled into the new loan if you’re strapped for cash. Use this online calculator ( to run the numbers for yourself.

Stay on top of paperwork

Because the approval process could be delayed if you don’t provide the proper documentation, it pays to have everything in order from the start. Ask your lender for a detailed list of required documents. Assembling the documentation can be difficult and takes time. Give yourself two weeks.

If possible, submit the entire packet at once via certified mail. Sending in documents piecemeal could result in lost paperwork and your loan application falling to the bottom of the pile, says Nicole Hall, editor of Keep detailed records of any phone calls you make, and dates you mail or fax correspondences.

There are companies that will offer to take care of the paperwork for a fee, but you don’t need to pay. You can access free help through a housing counselor ( approved by the U.S. Department of Housing and Urban Development. Counselors will help you understand the Making Home Affordable program and aid in gathering the documents needed for your loan servicer.

Donna Fuscaldo has written about mortgage refinancing for Dow Jones, the Wall Street Journal, and Fox Business News for more than a decade. Like many homeowners, her mortgage is precariously close to being underwater.

Source: Reprinted from HouseLogic ( with permission of the NATIONAL ASSOCIATION OF REALTORS® Copyright 2009.  All rights reserved.