HARP 2.0 Requirements

For a mortgage to be eligible for a HARP refinance, it must satisfy the following guidelines:

• Must be owned by either Fannie Mae or Freddie Mac.
• Must have been acquired before June 1, 2009.
• Must not have been previously refinanced through HARP.

HARP 2.0 Borrower Requirements

For a borrower to qualify for a HARP 2.0 refinance, he or she must satisfy the following HARP requirements:

• Minimum LTV of 80%.
• No late payments within six months and are allowed only one late payment within 12 months.
• Minimum credit score of 620.
• Maximum DTI of 45%.
• Monthly payment increase of 20% or less.

Loan-to-Value Ratio

The loan-to-value ratio is the comparison of a borrower’s loan to the value of the intended property to be purchased. Unlike the original HARP, which only extended to borrowers with less than 125% loan-to-value, HARP 2.0 does not place any restrictions on maximum borrower LTV ratios. However, to take advantage of a HARP refinance, borrowers must have a minimum LTV of 80%.

Note that these numbers represent the guidelines set by the Federal Housing Finance Agency (FHFHA) and do not reflect the guidelines which lenders may enforce. In other words, approval depends on lender discretion, and each lender may have different acceptable HARP loan-to-value ratios.

Payment History

HARP 2.0 requirements specify that borrowers must have a consistent, reliable payment history to qualify. Borrowers will be disqualified if they have made any late payments within six months of the refinance application. However, borrowers are allowed to make one late payment within twelve months of the refinance application.

Credit Score

Borrowers must have an averaged credit score of at least 620. However, each lender has unique HARP requirements for credit score and history, and some borrowers may need higher credit scores to qualify. Additionally, borrowers with higher credit scores may be eligible for more favorable HARP interest rates.

Debt-to-Income

A borrower’s debt-to-income ratio (DTI) represents the comparison of total monthly debt against gross monthly income. To qualify for a HARP refinance, borrowers may have a maximum DTI of 45%, meaning that the cost of monthly recurring debt payments, including mortgage payments, credit cards, car loans, or student loans, may only amount to 45% of the borrower’s gross monthly income.

To calculate this, take your annual salary and divide by 12. Take the total of your recurring monthly debt, and divide this by your monthly income to get your ratio. Here is an example:

Annual Income (A) = $65,000
A ($65,000) / 12 = $5,416.67 = Monthly Income (M)
Monthly Recurring Debt (D) = $1,800
D ($1,800) / M ($5,416.67) = 0.3323 = 33.23% Debt-To-Income Ratio (DTI)

Monthly Payment Increase

One of the most common goals of refinancing is to lower monthly payments. However, not all HARP refinances achieve this aim. HARP allows for a maximum of monthly mortgage payment increase of 20%, and if the refinances exceeds this amount, the borrower must be re-qualified.

Property Eligibility

One of the most advantageous aspects of the HARP program is that it's applied to a variety of property types, including:

• Primary residences
• Second homes
• Non-owner occupied properties
• 1-4 Unit properties
• Condominiums
• Planned Unit Developments (PUDs), otherwise known as townhouses
• Manufactured homes

Fannie Mae does not restrict some properties which a borrower may refinance, while Freddie Mac regulations limit borrowers to financing four properties.

After Qualifying

Following qualification for a HARP 2.0 refinance, borrowers should improve their credit scores to secure the lowest possible rates. Decreasing the debt-to-income ratio is also beneficial.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.