Did you know that you can use the HARP 2.0 loan program to refinance your rental property?
In fact, since the program started in 2009, over 10% of all HARP loans were used to refinance investment properties.
The Home Affordable Refinance Program (HARP) is a powerful tool because you can refinance even if your rental property is underwater. If you’ve lost a lot of equity and owe twice as much as the property is worth, you might still qualify for a HARP refinance.
Before HARP came around, landlords had a hard time refinancing if they owed more than 80% of the home’s value. Since HARP’s inception, over 270,000 high loan-to-value investment property refinances have been completed according to an FHFA report.
So How do you go about Refinancing a Rental?
The process is similar to any refinance.
Find a lender and make sure you qualify. You do not have to use the same lender that opened your existing loan.
Lenders may impose their own rules when it comes to refinancing a rental with HARP. Call around until you find a lender that will take your loan.
When you find a lender, gather your documentation as directed by your loan officer. Contrary to some misconceptions, a HARP loan does require income documentation and is therefore unlike the FHA and VA streamline refinance programs. You will need to supply things like paystubs, W2s, and bank statements.
In addition, you will probably need the following documentation because you are refinancing a rental property:
- Current lease agreement
- Past 2 years’ tax returns
- Enough income to cover any monthly loss on the rental
- Extra assets in reserve as a precaution in case you lose your renter
HARP Investment Property Requirements
To be eligible for any HARP loan, your current mortgage must be owned by Fannie Mae or Freddie Mac. These companies have websites where you can determine whether they own your loan.
Other requirements are:
- Your current loan must have been sold to Fannie Mae or Freddie Mac by May 31, 2009
- You must owe more than 80% of the home’s current value
- You can’t have any payments that were more than 30 days late in the last 6 months, and no more than one 30-day late payment in the past 12 months.
- You can’t use a HARP loan on the same property twice.
I Make My Payments to a Bank. Could Fannie Mae or Freddie Mac Still Own my Loan?
Fannie Mae and Freddie Mac don’t accept mortgage payments. You make payments to a servicer, so there’s a chance that either Fannie Mae or Freddie Mac owns your loan no matter who you make payments to.
Can I Qualify for HARP if I have a Second Mortgage on my Rental Property?
If you have a second mortgage, don’t fear. You may still be eligible for HARP.
Your HARP lender will request a subordination from your current second mortgage lender. The subordination states that the second mortgage will be lesser in priority to the new HARP loan.
It may be a good idea to call your second mortgage lender ahead of time and ask about their policy when it comes to subordinations.
Other Tips on HARP 2.0 Investment Property Refinances
Here are some things to know about using this program to refinance a rental:
- If you don’t currently have mortgage insurance, you won’t need it for the new HARP loan.
- You can wrap most or all closing costs into the new loan
- You can refinance a 2-, 3-, or 4-unit rental property with HARP 2.0
- You can use HARP even if you bought the house as your primary residence and later converted it to a rental.
If you have a rental property, HARP could be a great way to save money each month and increase cash flow.
There’s certainly no better way to refinance an underwater investment property. Without HARP, landlords across the country would be stuck in high interest rate loans with no way to reduce their interest rate and payment. Take advantage of this great program.