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My Underwater HARP 2.0 Rental Property Loan was Approved!

HARP 2.0 Rental Property Loan Approved!

Yes! My super underwater rental property’s Home Affordable Refinance mortgage loan has been approved by the same institution that currently finances the rental property. This is quite unheard of in the investment world, especially because before this program, there was no way in hell an institution would refinance an investment property that didn’t have at least 25% of existing equity. Well, thanks to the Obama administration, my home with approximately 20% of NEGATIVE equity is about to be refinanced early next month.

If you are a follower of this blog, you’ll know that this mortgage has been a pain in my ass and has pissed me off ever since I started renting it out at a “loss” in November 2009. When I originated the mortgage, I had no idea how to use my mortgage guidelines for investment properties. In fact, I had no idea that it would even turn into an investment property. Therefore, I found myself buying too much house than I can afford [to turn into a future investment property].

Background

In 2007 I took out a 101.5% mortgage of $193,500 at a 30 year fixed rate of 6.5%.  In late 2009, I begin renting out this property for the going rental rate of $1100, although my total mortgage payment was over $1500. I’ve been losing $400 monthly for the past 2 and half years. Of course, like almost everyone who purchased property in years 2006-2007, I didn’t intend that my value would ever fall to its current value, which is now $136,000. At the time, my worst case scenario was selling my property at an unappreciated price, not an underappreciated price. But as you know, my home, just like millions of others’, turned officially super underwater.

HARP 2.0 Rental Property Process

I found out about the newest HARP guidelines just by reading financial news and continually investigating how to refinance my underwater rental property. After learning about the newest guidelines that were launched in late November 2011, I called my lending institution, once I learned that they finally implemented HARP 2.0 in March 2012, to find out what their guidelines were. I was excited to find out that even with their “extra” guidelines I could afford the HARP 2.0 refinance.

Even though it was quite expensive, relative to a standard refinance, the bank had given me an opportunity to finally do what I’ve been wanting for so long.

It gave me the choice of either a 15 year fixed rate mortgage at 4.125% or a 30 year fixed rate mortgage at 4.625%. The cost for either rate was a 0% origination charge with “only” 2.25 percentage points. The estimated cash needed to bring at closing was $9,500 with $5,000 eligible to be “rolled” into the refinance. So, after electing to roll the $5,000 into the cost of the new mortgage, the total financing would be $177,000 for a new 30 year fixed rate mortgage of 4.625%. This new mortgage payment will be approximately $1170, or a savings of $3,600 yearly.

My Intentions for my HARP 2.0 Rental Property Going Forward

I intend to never live in this property again, and will sell it in 2020 (when I plan to retire from the military). But, now I will be much more comfortable knowing that I’ll be saving $28,800 over the course of 8 years as opposed to losing $400 monthly, or $38,400, over the course of 8 years .

Just to be sure that the mortgage will equal the current value of $136,000 in 8 years, I’ll be adding an additional monthly principal payment of $200 starting with the 1st mortgage payment. That’ll put the mortgage balance at $128,169 in July 2020. In the meantime, my existing renters will continue to pay $1100 of my soon-to-be $1170 mortgage payment. It’s a no-brainer that a $70 monthly “loss” is better than a $400 monthly “loss.”

Also, because the property will continue to be classified as an investment, I’ll still be able to deduct from my taxes, the interest, insurance, mortgage points for this year, and the home owner’s association dues. I’m so freakin’ excited!

Comments

  1. Wow, that is AWESOME! I never knew a HARP could help refinance a rental property either. Does the loan still have to be with Fannie/Freddie?

    Good stuff! Going from 6.5% to 4.625% is great.

    • Thanks for stopping by!

      Yeah, unfortunately, here are the guidelines for the HARP according to the official website:

      You may be eligible for HARP if you meet all of the following criteria:

      •The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
      •The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
      •The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
      •The current loan-to-value (LTV) ratio must be greater than 80%.
      •The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.

      *Eligibility criteria are for guidance only. Contact your mortgage servicer to see if you are eligible for HARP.

  2. Duke Bushong says:

    I don’t get it. The principal paydown on a 30yr, 6.5%, 194K loan for 36 mos is appx 7K. The bal on the loan would be appx 187K. How did you get a new loan for 177K? Did you make a extra payments during those 3 years?

  3. Romeo
    Thanks for the post. This is almost exactly my situation and I am planning on starting the process now. Can you let me know who your lender is. Also, the very last thing you said on your post about tax deductions– how does one do that. I was told that I can’t deduct anything because my AGI was too high (my wife has a well paying job and we file joint).

    • My Lender is Navy Federal Credit Union. The deductions that you may be able to take for your rental property are all on the Schedule E. Because you will operate your property as a rental, schedule A will no longer be applicable to this property once it is “placed in service.”

  4. Do you know of Navy Federal Credit Union can refinance properties financed by other institutions?

    Thanks

  5. No, sorry. I went from Navy Federal to Navy Federal. They will have to answer that question for you.

  6. Romeo, the numbers on my rental house are very close to yours, and my original mortgage is with Navy Federal. I was under the assumption that I didn’t have a Fanny/Freddie mortgage therefore it wasn’t eligible. I guess I was wrong? Regardless I guess I’ll be checking with Navy Federal. Like you, if I could refinance from 6.4% down to 4 I would no longer be taking a rental loss.

  7. Was your NFCU mortgage originally backed by Freddie or Fannie? The Navy Federal rep advised me to fill out the application (which I am doing), however I did not get the impression that he was very knowledgable. The Navy Federal HARP website does not mention any Freddie/Fannie requirements, but I’m not getting my hopes up just yet.

  8. Thanks man, my home does not show up at all on those search tools, however I filled out Navy Federal’s application anyway. Their mortgage specialist called today and said that I had the options to either refinance to 4.25% 30 year or get a modification of existing mortgage to 4.375%. It looks like a straight up modification might be best for me, as long as they guarantee that there is no negative impact on my credit score. Either option would allow me to break even on my rental and stop ‘losing’ every month. I’ll keep my fingers crossed.

    • Ryan. When filling up the application, was there a question about this being a primary residence? The key question here is, are they willing to refi even-though the property is under-water and is not owner occupied (rented instead)/

      Thanks in advance for your answer.

  9. HARP 2.0 also applies to underwater rental properties, and I stated that it was not my primary residence on the application.

    I believe that I’m also eligible for a modification because I used to live there and had to move due to PCS orders. I was surprised to even hear that as an option, because I always thought that you had to be on the brink of foreclosure for a modification. I have never been delinquent on any payments.

    • Thanks for your feedback Ryan. Any idea if I can refi from a different bank to Navy Federal. I am having a tough time with Chase as they are unwilling to do anything with me, unless I am over the 31% income-to-PITI threshold, and being my primary residence.

      • I don’t know if Navy Federal does but I know that others will if you are eligible for HARP. Doesn’t hurt to ask around with Greenlight, Quicken, etc just don’t pay any sort of up front application fee until they can confirm that you are HARP eligible

  10. Thank you so much for this post! I did the EXACT same thing with my rental. We were able to refinance via Harp even as a rental through Citimortage. It took my payment from 1281 to 1013 a month so I now net 375 a month in rent. I plan to add $200.00 in principal every month to try and get this balance down. It is SO SO underwater and the anxiety has been a LOT to bear. This made me not feel so alone 🙂

  11. As a final follow-up, I just signed the papers to modify my loan on a rental property to 4.25% which is better than what they said over the phone. Only $1000 fee to process, so it was a no-brainer to do that instead of refinance. It supposedly won’t affect my credit any (according to NFCU). The maturity date stayed the same. This lowers my note from $1327 to $1130. Fair market rent is $1050-$1100. This makes it MUCH easier to rent for another 5-10 years until I can sell.

    So the lesson is, if you have Navy Federal, even if your home doesn’t show up on the Fannie/Freddy sites fill out their application and see what they can do!!
    Thanks for the blog posts.

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