|Q & A: Refinancing with HARP 2.0 in Sonoma County
Q: Can I refi my investment property and go from a 30 year mortgage to a 15 year mortgage under the HARP 2.0 Refi Program?
A: The short answer is, “yes you may.” If you plan to conduct this refinance, your Sonoma County home can be a primary residence, second home or an investment property. The eligible occupancy on this program does not matter. However, by moving forward with the refi, there must be a net tangible benefit. The most common net tangible benefits on this program are interest rate and payment reduction, however, the following net tangible benefits are also permitted:
• Reducing the amortization period.
• Replacing an adjustable-rate mortgage, interest only or balloon mortgage with a fully amortized fixed rate.
• Reducing monthly principal and interest payment on the new first mortgage whether or not a second mortgage is in place.
• If the payment rises as a result of the changing of amortization terms or product type, your loan is still eligible for refinancing- for example going from a 30-year fixed-rate amortizing mortgage to a 10-year fixed-rate amortizing mortgage, the payment on the 10-year fixed-rate mortgage will be substantially higher, it is permitted so long as Fannie Mae or Freddie Mac approve it.
Q: I saw 30-year fixed-rate mortgages at 3.67 percent. How come you’re quoting me 4.25 percent?
A: The HARP 2.0 refinance is geared towards homeowners who owe more than their homes are worth. As a result, anything over 80 percent loan-to-value has what’s called a low-level pricing adjustment. It is simply a premium the lender requires for taking on the added risk of originating a loan above 80 percent loan-to-value. If the loan you’re trying to refinance is above 80 percent loan-to-value or even above 100 percent loan-to-value, there is added risk the
lender inherently takes on and passes to you the consumer.
This is why interest rates on the HARP 2.0 Refinance, while competitive, will always be slightly higher than advertised rates you see on the internet or hear about on the radio. Usually, in most cases, those interest rates are for borrowers who are financing a primary residence only, have an extremely low debt to income ratio - like 36 percent or lower - and have a middle credit score of 780 with an impeccable credit profile.
If your current mortgage lender is calling you to refinance your mortgage loan you already have with them, know this: you’re likely paying a higher rate of interest than current market.
Think about it, if you’re paying an interest rate of 5 percent or over on your current 30-year mortgage, and you can pay them off and get a new rate of 4 percent or lower, why would they want you to refinance when they’re making a higher premium off the interest you are paying on money they lent you?
The reason is simple: they know mortgage interest rates are lower and they know they are going to lose your business anyway if they don’t call you first.
So they figure if they can get to you first by offering you a refinance opportunity before anyone else does or before you research it yourself, you’re more than likely to go with them, right?
Your current mortgage lender/servicer knows rates are lower, they risk losing you as a customer, they might as well earn some revenue by originating your new loan, which might end up going back to them in the secondary market, anyway. Let’s get real, your current lender has zero obligation to give you the lowest mortgage rate possible you qualify for, so be assured, they’re offering you a refi opportunity to make money.
Know that shopping that rate elsewhere is in your best financial interests.
As for whether or not the process is “made easier” by working with your current mortgage lender, once again this is another clever pitch banks offer consumers. In order to qualify for a refinance, whether a standard traditional Sonoma County Refi or a HARP 2.0 Refi, you need to provide your income documentation, your most recent paycheck stubs and a full financial package.
Your bank does not have this information saved. They will not tell you this, but they don’t and they will need this information from you just as though any mortgage lender you researched yourself would too.
At least get a second opinion on a refinance opportunity with another lender, preferably a local lender that knows the Santa Rosa Mortgage market/real estate market well.
The ideal mortgage provider is usually a mortgage lender with the ability to originate loans and sell loans directly in the secondary market.
These are the market lenders who work with multiple investors who ultimately deliver the loans to Fannie Mae or Freddie Mac. This assures you’ll receive fair competitive mortgage terms when seeking the lowest possible mortgage rate on your refinance.
Scott Sheldon is a local mortgage lender, with over six years of experience helping people purchase and refinance primary residences, second homes and investment properties. Visit him at www.sonomacountymortgages.com.