Before you HARP, you must read this!
Well, we are back with yet another update on the HARP 2 refinance program. If you are considering applying for this refinance program, keep reading! You may be denied if you fail to follow these simple steps.
For those of you not yet in the know, the HARP 2 (Home Affordable Refinance Program, version 2) is a refinance program specifically for homeowners that are upside-down on their home but have continued to make their payments on time.
So, what is this unknown factor causing these seemingly good loan applications to be denied?!
LENDER PAID MORTGAGE INSURANCE
When a homebuyer puts less than 20% down upon purchase, their loan will most likely have PMI (Private Mortgage Insurance). This insurance protects the bank against you defaulting on the mortgage loan. Many people are reading up to this point and saying, “Yeah, I know all about PMI.” Here’s something you may NOT know.
There are two types of PMI: Borrower Paid (where a separate portion of your monthly mortgage payment is specifically allocated toward the insurance premium on a monthly basis) OR Lender Paid (where the Lender actually pays the whole policy up front for you and then charges you a higher interest rate on the loan to make up for it).
The problem is that many people don’t know that they even have LPMI (Lender Paid Mortgage Insurance) because it doesn’t reflect on their online accounts or mortgage statements.
If you can’t see it on your statement, how do you know if you have LPMI?
Here are a few ways you could find out if you have LPMI and save yourself a whole lot of hassle down the road:
- Ask your current mortgage holder – they should be able to look it up for you
- Find your loan paperwork from when you got the original mortgage – it will be notated on there
- Remember your purchase or refinance – If you put down less than 20% or refinanced with less than 20% equity left in the property at the time, you probably have mortgage insurance.
So Why Does This Matter?
Banks cannot refinance most borrowers with LPMI because it is not easily transferred over. With borrower paid PMI, the new mortgage company could transfer the policy and just continue the same coverage and monthly amount. With LMPI there is no solid way to transfer it or make the adjustments because it was paid in full by the lender at closing origianally.
The bottom line: Check if you have LPMI using the above methods, before you apply with any mortgage company.