I’ve written many times on HARP loans and found that the most confusing, complicated HARP loan is the Freddie Mac investment property refinance. For the most part, Fannie Mae has made refinancing investment properties under HARP much easier than Freddie Mac.
Freddie Mac made the Same-Servicer HARP loan (the version only your current lender can do) extremely different than the Open-Access HARP loan (the version any Freddie Mac lender can do). This has caused misinformation resulting in homeowners being turned down for a loan they should qualify for.
In this post, I’m going to discuss some of the pitfalls related to refinancing a Freddie Mac HARP loan on an investment property and how to avoid them.
PITFALL #1- My lender tells me HARP is only for a property I live in
This is easily the most common reason homeowners are turned down. For most homeowners, this is not true. However, the lender may not participate in HARP loans for investment properties.
One of the reasons this happens is because homeowners usually call their existing lender for a HARP loan. The Same-Servicer Freddie Mac HARP loan does not allow a homeowner to change occupancy, so if the loan was originated for a homeowner who later converted the property to a rental, they are ineligible for this version of HARP. However, the Freddie Mac Open-Access HARP loan DOES allow for an occupancy change.
Another reason this may happen is if a lender simply chooses to not originate any HARP loans for investment properties. Bank of America recently changed their policy and is only participating on any HARP loans for investment properties.
Here are some details of what some of the larger lenders can do. I’ve gathered this information from the lenders directly when talking to some of their loan officers, so if this information is different than what you’ve heard, please let me know
Bank of America
- Bank of America only participates in the Same-Servicer versions of HARP. They also recently changed their policy to not do any non-owner HARP loans, even if the loan was originated as an investment property. You must apply for your investment property HARP loan with another HARP lender.
- Wells Fargo participates in both versions of Fannie Mae HARP loans but only participates in the Same-Servicer Freddie Mac HARP loan. This means if your loan is backed by Freddie Mac, is serviced by Wells Fargo and you changed occupancy, you cannot get a HARP loan from Wells Fargo. Also, if you are applying for the Same-Servicer version of Freddie Mac HARP, Wells Fargo offers this product to independent mortgage brokers who work with Wells Fargo. Its worth shopping this loan with Wells Fargo and a Wells Fargo approved mortgage brokers.
- Chase is the only large bank that I know of that participates in both versions of HARP for Fannie Mae and Freddie Mac. However, I have found that most Chase loan officers do not know the difference between the two programs. They often turn down clients who ask for an investment property HARP loan backed by Freddie Mac due to a change of occupancy, not realizing that the Open-Access version is eligible.
- GMAC only participates in Same-Servicer Freddie Mac HARP product and the Fannie Mae HARP product that any Fannie Mae lender can do. For the purpose of a rental property, this means GMAC cannot do a HARP loan on a Freddie Mac backed investment property where there was an occupancy change. You will have to shop for an Open-Access lender.
One thing to note is that if you have changed occupancy, you would need to refinance under the Open-Access Freddie Mac refinance which is the same for every lender. This means that your current lender has no special ability to get your refinance through than any other Freddie Mac lender offering this program, so be sure to shop for your lender based on knowledge, service and price.
PITFALL #2- My lender says I’m limited to 105% LTV, but HARP says I can go to 125%. Who’s right?
In this case, the lender often is right. Even though HARP states you’re limited to 125% of the home’s value, all HARP loans not closed through the same-servicer product must be ran through a software program called an Automatic Underwriting System. Freddie Mac’s program is called Loan Prospector or LP for short. It doesn’t matter what the written guidelines say, if LP states your loan has too much “overall risk”, it will turn down the loan and the lender will not be able to close the loan. In all the HARP loans I’ve closed, I’ve never seen LP accept an investment property loan over 105%. I have seen Fannie Mae approve investment properties above 105%, but not Freddie Mac.
PITFALL #3- My lender says I don’t make enough money to qualify.
If you get this answer, this means the lender is attempting to close your loan under the Freddie Mac Open-Access refinance program. This is because the Same-Servicer program does not calculate debt-to-income.
Please note that there are very specific guidelines on how to calculate debt-to-income on a rental property that most loan officers do not know how to do properly. Loan officers who have experience working with investors or complex tax returns should be on your list of requirements when shopping for a lender. If your loan officer doesn’t ask your for your lease agreement, mortgage statement and tax returns including Schedule E’s on the first call, they likely are not a good candidate to handle your refinance. Calculated correctly, most rental properties are eligible for a refinance, even if the property receives a small rental loss per month.
PITFALL #4- My lender says I must have assets in my bank account.
This request, like #3, is likely due to a lender processing your loan as an Open-Access refinance. This pitfall is 100% true, as Freddie Mac’s program LP, always asks for 6 months of payment reserves on rental property refinances. Be prepared to show you have assets ready when you apply.
PITFALL #5- I’ve heard we don’t need an appraisal for HARP, but I’m being asked to order an appraisal. Why?
Freddie Mac doesn’t always require a homeowner to order an appraisal when you do a Same-Servicer HARP loan, but if you changed occupancy and are applying for a Freddie Mac Open-Access, this program always requires an appraisal. Be prepared to order an appraisal and expect the cost to be higher than a normal appraisal. This is because appraisals for rental properties include a rent schedule which adds to the cost of your report.
PITFALL #6- I’m told I can only have 4 properties financed. Is this true?
If you are refinancing a Freddie Mac investment loan on the Same-Servicer program, there’s no limit to properties financed but there is a limit to 4 on the Open-Access program. If you have more than 4 properties with a loan on them, you can only refinance a Freddie Mac HARP loan if the loan was originated as a rental property originally and through your current lender on the Same-Servicer program.
If you changed occupancy and have more than 4 properties financed, you’re out of luck.
Recent HARP 2.0 guidelines have changed to allow your servicer to do these refinances. Some lenders have been quick to update their guidelines but not all staff at these banks are aware that these changes have been implemented.
In addition, the loan-to-value limts have been removed and you now can go over 125%.
Please contact me if you would like a referral to a lender.