Underwater Home Loan Help: 3 Government Programs Offer Relief

Underwater Home Loan Help: 3 Government Programs Offer Relief

If your home loan is upside down, your mortgage is more than your house is worth, and you’re looking for help – you are not alone.

Here’s a look at three government programs that were created to help you refinance your mortgage under friendlier terms.

HARP: The Next Generation

The first incarnation of the Home Affordable Refinance Program (HARP) appeared in 2009.

Geared to homeowners with loans backed by Freddie Mac or Fannie Mae, HARP was only available to a small number of homeowners. Homeowners who qualified for HARP could refinance up to 125% of their loan to value. HARP was later revamped in its 2.0 version, eliminating that 125% cap.

Fast forward to 2013: HARP 3.0 is expected to replace HAPR 2.0 at the end of this year (the bill has not yet passed at the time this is being written). It will allow more underwater homeowners than ever to refinance their mortgages.

According to experts, HARP 3.0 will expand the number of eligible borrowers. Those who may have tried for a refinance in the past but were rejected will now be able to try again to refinance their mortgages.

HARP 3.0’s main purpose is to address those mortgages not guaranteed by Freddie Mac or Fannie Mae, as well as those whose loans exceed $417,000.

There will be qualifications. Anyone wishing to apply for HARP 3.0 must have only been late one time on their mortgage payment in the last year, as well as have made their mortgage payments on time over the last six months. In addition, less than 20% equity in the home is required.

The Interest Rate Reduction Refinance Loan (IRRRL)

For members of the military, the VA Interest Rate Reduction Refinance Loan can help those service members with VA home loans to lower their interest rate by refinancing. In addition, those VA homeowners can also refinance their adjustable rate mortgages to a fixed rate loan.

Although there are no underwriting packages required to apply for this particular loan, an increase in the interest rate may occur when an adjustable rate mortgage is refinanced into a fixed rate. As well, any loan proceeds are not eligible for cash-out.

A good thing about the IRRRL loan is that it can be completed with no money out of pocket on the homeowner’s part. But this is only possible when all costs are included in the new loan. The homeowner can also avoid out-of-pocket expenses by increasing the interest rate enough so that the lender must pay the costs.

The IRRRL loan can only be used to refinance those properties on which the VA eligibility has already been used. In other words, the refinance must occur from a VA loan to a VA loan.

The Single Family Guaranteed Rural Refinance Pilot Program

This option has recently announced its expansion into sixteen additional states. The Single Family Guaranteed Rural Refinance Pilot Program is offered to those homeowners whose loans were either made or guaranteed by the USDA. The program helps hard-working homeowners to get back on firm financial standing by lowering the amount of monthly mortgage payments that are to be made.

The Single Family Guaranteed Rural Refinance Pilot Program will allow those homeowners to refinance at today’s rates. To date, the program has helps over 400,000 homeowners to refinance. Eligibility for this program will require that the homeowner is a current guaranteed loan or Section 502 Direct borrower with timely payments having been made in the year prior to the date the original loan was applied for.

As well, the homeowner must meet the eligibility limit for adjusted income, as well as reside in a rural area that is or was eligible for the program when the home loan closed. One benefit of this option is that it doesn’t require any new credit reports, appraisals or property inspections to occur. However, this doesn’t mean that lenders will not order a credit report to verify payment history.


All of these organizations urge any homeowner who was previously rejected for a refinance to contact them once again, due to the fact that terms and rules are always changing.

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