editor’s note: on october 24, 2011, the fhfa announced changes to harp that remove the 125% ltv restriction for fixed-rate loans. see the bills.com resource harp changes to learn about the new harp.
stated income loans
if you qualify for the harp refinance program, that is likely your best option. as for the stated loan, i know of very few lenders that still offer such loans, and the ones that do tend to have higher costs and stricter loan-to-value requirements. self-employed borrowers, whose tax returns show an income that does not meet lenders' conventional loan debt-to-income requirements are the type of borrower who may most benefit from the few stated loan programs still available. if you do go with the stated loan, be sure to carefully evaluate the terms and fees to make sure you're not digging yourself a bigger financial hole in the long run.
here are lenders' three main considerations when offering a loan:
1. credit history. your credit history is a major consideration when shopping for a new mortgage. a high credit score will increase your chances of finding the best loan with a low rate and low points, since you will qualify for better interest rates than those available to people with credit problems. if your credit score is better than 720, you should expect to qualify for an interest rate that relatively low.
2. loan to value or equity. the amount of equity you have in your home (or its inverse — the loan to value or ltv), and the length of time you have been paying on your current mortgage are major considerations. to lower your payments, you must either obtain a loan with a lower interest rate than your current mortgage, find a mortgage with a longer repayment term, or borrow less than the original balance of your current mortgage.
for example, if you have $60,000 left to pay on a $100,000 mortgage, you could cash out $40,000 in equity and keep the same monthly payment as the old loan, assuming the interest rate and loan term remain the same. however, if the balance of your new mortgage will be more than that of your old mortgage, you must either find a lower interest rate or take a loan with a longer repayment term, if you want to keep your monthly payments the same. the ways to build equity are to either pay down your mortgage over time or to build equity by your home appreciating.
3. debt to income ratio. a consumer's debt to income (dti) ratio is the measure of his or her ability to make payments on loan. most lenders look at combined dti, so the percent of your income that goes to debt payments (including mortgage, auto loans, credit cards, etc) to make sure that you can afford the loan. some borrowers will allow stated-income loans, where income is not formally verified, although given what has happened with defaults it is less likely than ever to get approved for a high-dti stated-income loan.
harp loans are geared towards borrowers with limited equity in their home that prevents a conventional refinance. harp loans are available for borrowers who seek to borrow between 80% and 125% of their home's value. if your ltv is the barrier to qualifying, harp is a good option. (update: the new harp will have no maximum ltv cap).
shop around with different lenders and brokers to find the loan that best suits your needs. i encourage you to start your search by visiting the bills.com home refinance resources page where you will find a wealth of information about home refinance programs.
if you cannot refinance today, there is always a chance that you could build equity over time if your home appreciates or if you pay down debt. bills.com makes it easy to compare mortgage offers and different loan types. apply for a free quote at our mortgage loan quote page.
not only will these mortgage professionals be able to tell you whether or not your currently qualify, but if you do not qualify, they can tell you what aspects of your financial situation might cause you problems, and make suggestions about how to improve your chances to qualify for a loan.
i hope this information helps you find. learn & save.