If you have had difficulty finding a lender to refinance the home mortgage on your primary residence due to market value fluctuations, an inadequate credit score or an income deficiency, the Home Affordable Refinancing Program may be able to help. Known as HARP, the federal government organized the program to help homeowners take advantage of low interest rates and better loan terms when lenders are otherwise unwilling to do so.
Participation in HARP is not directly associated with a drop in your credit score. Instead, lenders report a refinance through HARP the same as they would any other mortgage loan refinance. When you refinance your mortgage, your lender will run a credit inquiry, which could cause a slight dip in your credit score. However, Fair Isaac Corporation – the publisher of FICO credit scores – states that new credit only influences 10 percent of your overall credit score and that for most people, one new credit inquiry will not take off more than five points on a credit score.
According to Forbes.com, many people mistakenly confuse the Home Affordable Modification Program with the Home Affordable Refinance Program. Both programs operate under the same Home Affordable Program sponsored by the U.S. Departments of the Treasury and Housing and Urban Development; however, HAMP and HARP are very different. Unlike HARP, the HAMP program may have a considerably damaging influence on your credit score because it modifies your original loan terms -- in many cases lowering the amount of principle you owe on your loan altogether. In 2010, The St. Petersburg Times reported that HAMP could lower credit scores by as much as 100 points in some instances. Those with the highest scores prior to participating in HAMP incur the most credit damage.
If your credit score is already low and you have not yet applied for refinancing through HARP, you may be eligible to qualify for the program through some lenders with a subprime FICO score as low as 620. However, you must be current on your existing mortgage to qualify, and you must owe more money on your home than it is currently worth. HARP refinancing is available for up to 125 percent of your current home market value if you are currently trapped in an underwater mortgage.
If you wish to participate in the Home Affordable Refinance Program, but currently have mortgage insurance on your existing loan, you may only participate in the HARP program at the discretion of your existing lender. According to Bankrate.com, lenders have little incentive to grant a Home Affordable refinance if they believe you are currently capable of meeting your existing mortgage obligations, and Cobalt Mortgage reports that few lenders are willing to grant such refinancing.
- MakingHomeAffordable.gov: Home Affordable Refinance Program (HARP)
- Forbes; Refinance Your Mortgage (Even If You Have No Equity); Gerri Detweiler; February 3, 2011
- Bankrate; HARP, the Forgotten Stimulus; Holden Lewis; August 3, 2010
- Keane - Ng; I Want a HARP Loan but I Have PMI; Keane K. Ng
- Banks.com; "How Mortgage Refinancing Affects Your Credit; Miranda Marquit; August 15, 2010
- Comstock/Comstock/Getty Images