There has been alot of recent news about government-backed mortgage refinancing. I wanted to share our experience to help other homeowners and even renters! Yes, renters!
President Obama recently proposed expanding a program called “HARP”. HARP allows Americans, who are current on their loans, to refinance into lower rates even if they owe more on the home than the home is worth.
If this is the first you hear about HARP you are not alone. Many people think it is a government hand-out for people who are irresponsible. It’s not! My husband and I went through the process. Here is our story and what you should know:
In 2008, we found a typical 4-bedroom house in Los Angeles for $415,000.00. With 10% down, we financed the rest at 5.625%. Our payment including insurance and property taxes was $2,600.00 per month. The property had separated master bed and bath quarters that we could rent out for $675.00 per month bringing our payment down to $1,925.00/month.
Renting a house in this same area was about $2,300.00 per month. Because the monthly payment made sense, we purchased in spite of a declining housing market.
Our Experience with HARP:
We wished to refinance into low rates but knew our loan to value ratio on the home would not make sense. However, in September 2011 we learned that our bank, Citibank, could re-finance our loan under the HARP program. Through HARP, the government gives banks incentives to refinance homes up to a 125% loan-to-value.
The catch: the loans must also be owned by government-sponsored entities Fannie Mae or Freddie Mac. President Obama’s new mortgage refinance proposal expands this initiative to loans owned by private holders.
By the way, Fannie Mae and Freddie Mac purchase loans already vetted and lended by the banks. Americans simply pay the government back instead of the bank. This process removes the debt from the banks books. It allows them continuing lending more money into the private sector to spur business activities. It’s smart and has been done this way for generations.
Fannie Mae held our loan so we moved forward. We had to submit payroll stubs, bank statements (2 months), credit reports, our right arms, left toes….just making sure you’re still paying attention. In short, we had to prove ourselves very credit-worthy in spite of our already stellar loan payment history with Citibank.
Our house appraised at $390,000.00, having lost about 5% value in three years. The close date was extended 4 times but our loan officers were top-notch and delivered on all promises by the close date. We were very pleased with Citibank’s professional staff.
By re-financing our loan to 4.25%, we lowered our monthly payment by $390.00 per month. All costs were rolled into the loan. Mortgage insurance terms are unaffected when refinancing through HARP.
If you are doing the math, we are saving $4,680.00 per year! The average family stands to save about $3,000.00 if they participate in HARP. Expanding this refinance option to 3 Million more Americans could pump $9 Billion into the economy or be much needed financial cushion for families.
Our “economic stimulus” plans this year:
Take a vacation
Hire a cleaning person
And we are able to keep rent low for our tenant.
And that brings me to….
Renters: Call your landlord and tell them about HARP. Investment properties can be refinanced through the program, too. After a few months, renegotiate your lease to a lower payment.
President Obama and Congress have done something good here. Until companies pay living wages and capitalism is about saving instead of spending, this is about as good as it gets. Average Americans need more money in their pocket to make the economy grow. Please spread the word about the extension of this sensible program.