Home Loan Refinance or Mortgage Modification: Is HARP or HAMP Right for You?

A traditional refinance, a Home Affordable Refinance Program (HARP) refinance, a Home Affordable Modification Program (HAMP), or a non-government modification–these are all options for improving your mortgage interest rate. But which is right for you? The HAMP program offers the best deal if you qualify–think of it as a refinance with a rate as low as 2% at almost no cost to you.

HAMP Help

HAMP is there to help homeowners with hardships avoid foreclosure. Qualifications include:

• House is your primary residence
• Mortgage is less than or equal to $729,750
• Mortgage taken out before January 1, 2009
• Total house payment exceeds 31% of household gross monthly income
• Hardship — a substantial loss of income or increase in expenses that’s not your fault AND
• Sufficient income to make a modified payment

If you qualify, contact your lender. Document your income, assets, debts, and hardship to get a trial modification and hopefully a permanent one. The average HAMP modification saves borrowers about $500 a month.

HARP Refinance

HARP is for borrowers who would be qualified to refinance except that they lack sufficient home equity. You can owe up to 125% of your home’s current value and still refinance under HARP. To qualify:

• Your mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac
• You can’t have been more than 30 days late on your mortgage payment in the last twelve months
• Your first mortgage can’t exceed 125% of the value of your home

If you qualify, contact your loan servicer about a HARP refinance. You can get a HARP refinance from any Fannie Mae or Freddie Mac lender as long as your application is approved by Fannie’s Desktop Underwriter or Freddie’s Loan Prospector automated underwriting systems. If not, only your current lender can approve you under HARP. Another obstacle is mortgage insurance–with a new lender, you may not be able to obtain it.

Non-Government Help

If you don’t qualify for HAMP and don’t need HARP, a regular refinance may be your best bet–it allows you to shop for the best rate. An FHA refinance might be your best shot if you don’t have much equity.

Finally, if you’re having mortgage trouble but can’t get HAMP (say your house is a rental), call your lender. Homeowners get modifications when the lenders feel that they will lose less with modification than foreclosure.