A Practical Guide: When Should You Apply for the HIRO Program?

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High LTV Refinance, HIRO

Buying a home is the biggest expense most Americans make. Unfortunately, some homeowners find themselves in a situation where they are underwater on their homes.

In the 4th quarter of 2019, 1 in 16 homes was underwater, meaning they had a mortgage balance of at least 25% higher than their home’s market value.

When homeowners are underwater on their home, they owe more on their mortgage than their home is worth. As a result, underwater borrowers can have difficulty refinancing and are often at a higher risk of foreclosure.

Many of these homeowners can benefit from a high LTV refinance option like the HIRO program.

To learn more about the HIRO program and who qualifies, keep reading!

What Is the HIRO Program?

The HIRO (High Loan to Value Refinance Option) mortgage program was created as a HARP replacement, along with the FMERR (Freddie Mac Enhanced Relief Refinance) program.

Both government assistance plans that help homeowners with low equity in their homes take advantage of historically low-interest rates.

When homeowners meet HIRO loan eligibility requirements, the HIRO program enables them to refinance, even if what they owe surpasses 97% of their home’s value. Many borrowers end up trapped in high-interest mortgages, with no option to refinance. These are the borrowers who can benefit significantly from the HIRO program.

How Does It Work?

Since the Great Recession, home prices have rebounded. However, the recovery has not influenced every area across the United States. Many homeowners found that their homes’ values have decreased.

When it comes to refinancing, most lenders have a maximum LTV (loan-to-value) requirements. Fannie Mae and Freddie Mac, however, require minimum loan-to-value requirements. For borrowers living in areas without substantial property value increases, the HIRO program is ideal.

If you have too much equity in your home, though, you probably will not qualify. These are the minimum LTV ratios to qualify:

  • 97.01% for a primary 1-unit residence
  • 85.01% for a primary 2-unit residence
  • 75.01% for a primary 3-unit to 4-unit residence
  • 90.01% for a secondary 1-unit residence
  • 75.01% for investment properties from 1-4 units

Necessary Qualifications for the HIRO Program

The HIRO mortgage program was created to help a specific group. If you are interested, you must take a look at the initial requirements before moving forward with an application:

  • Freddie Mac or Fannie Mae must own your mortgage.
  • The loan must have originated either on or after October 1, 2017.
  • You must have passed at least 15 months on the loan for it to become eligible.
  • You cannot have made any payments over 30 days late for the last six months.
  • You can only have made one payment over 30 days late during the prior 12 months of your loan.
  • You cannot have any delinquencies over 30 days.
  • You cannot have previously taken advantage of the HARP relief program on the same loan.

You Must Also Prove a Benefit

The purpose of the HIRO program is for homeowners to benefit from the high LTV refinance option. To qualify, you must show that you will benefit significantly from the HIRO program.

Homeowners can show they’ll benefit if their interest payments and monthly principal show a reduction. If there is a lower interest rate overall or a shorter amortization term, either can be used to prove the benefit.

If you can stabilize your mortgage product, like by trading in your adjustable rate for a fixed rate, that’s another indication that you will benefit from the HIRO program.

Who Should Consider the HIRO Program?

It can be difficult to refinance a home without significant equity, even if you have an excellent income and great credit.

Even though home values rise, not all home prices are up, and there are plenty of metro areas where home prices have declined. This reality can lead to homeowners with a mortgage balance higher than what their home’s value is.

If you are a homeowner with a balance higher than your home’s value, the HIRO program could help you refinance at a much lower rate.

Does the HIRO Program Look at Credit or Debt-to-Income Ratio?

Borrowers need not worry about credit scores when applying to Fannie Mae’s HIRO program. Typically, lenders don’t consider credit scores because the borrower must already demonstrate a good financial history with the property.

Check with your lender, though, as some add their own rules to Fannie Mae’s guidelines.

Lenders do not list a debt-to-income ratio ceiling as a loan requirement, either. The idea is that the HIRO program will help, not hinder, the borrower. They have already been making timely payments, so the financing should only reduce their monthly costs and debt-to-income ratio.

Fannie Mae’s HIRO program loan replaced HARP. HARP ended in 2018, and the purpose of the HIRO program is to provide options for those who may have benefited from the HARP program. However, for borrowers who refinanced with HARP, the HIRO program is not an option.

Consider High LTV Refinance if You’re Underwater

If you’re underwater with your mortgage loan balance, it’s in your best interest to at least consider a high LTV refinance for your home.

You may have a high income and excellent credit, but the value of your home is not going up. That can put homeowners in a situation where their mortgage loan balance is greater than what their home is worth.

Fannie Mae created the HIRO program to help borrowers in that exact situation. It provides a way to get locked into a low-interest rate rather than digging yourself in a hole stuck in a high-interest rate loan.

You do not have to have significant equity in your property to take advantage of the HIRO loan, either.

Are you ready to get a quote or curious to find out how we can help? Contact us with any questions or concerns, and get a quote in 3 easy steps!

At 7th Level Mortgage, we are an experienced team of mortgage professionals based out of New Jersey and serving the east coast from Pennsylvania to Florida, including Delaware and Maryland. We have won numerous awards for our excellent professional work and reputation with clients for being extremely diligent, accessible, and hands-on throughout the entire mortgage process.