When the real estate bubble burst, thousands of Americans found themselves in possession of a home that had lost a lot of its value and a mortgage that didn't reflect that. Some owed more on their mortgages than their homes were worth, and because most banks at the time required a loan-to-value (LTV) ratio of 80% or less, many of these homeowners were unable to refinance.

So in 2009, the government stepped in and created the Home Affordable Refinance Program (HARP) to enable these homeowners to refinance to get a more affordable mortgage. Nine years later, the program is still going, but it's set to come to an end on Dec. 31, 2018, so if you want to take advantage of HARP, now is the time to do so. Here are a few things you need to know about the program.

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Eligibility requirements

HARP loans aren't available to every homeowner. To qualify, you must meet these requirements:

  • The property is your primary residence, a single-unit second home, or an investment property with one to four units.
  • You have not made a payment that was 30 or more days late in the last six months, and you have not made more than one 30-day-late payment in the last year.
  • Your loan is owned by Freddie Mac or Fannie Mae. You can figure this out by using the companies' loan-lookup tools.
  • Your loan originated on or before May 31, 2009.
  • Your current loan-to-value (LTV) ratio (how much you owe versus how much your home is worth) is greater than 80%.

You can calculate your LTV ratio by dividing the amount you owe by the current value of your home. So, for example, if you owe $80,000 on a property that is currently valued at $100,000, your LTV ratio would be 80%.

The HARP program used to place a maximum LTV ratio cap of 125% on borrowers, but this is no longer the case, so if you were turned down for a HARP loan for that reason in the past, you may be eligible for one now.

In many cases, you do not need to get a new home appraisal to qualify, nor do you need to have a certain credit score. However, you do need to have some income and the documentation to prove it, though HARP loans typically require less paperwork than traditional mortgages.

Is a HARP loan right for you?

A HARP loan can be a smart move in the right circumstances. It won't reduce the amount that you owe, but it can help you secure a more affordable rate so it's easier to pay off. HARP loans also don't require you to carry private mortgage insurance (PMI) as traditional mortgage lenders do, even if you have no equity at all. PMI usually costs between 0.5% and 1% of your total loan balance per year, and this can add up to several thousand dollars annually.

You'll still have to pay closing costs, just as you would with a traditional mortgage refinance. Closing costs on HARP loans are typically lower than what you'd pay for a traditional refinance, but they can still to amount to thousands of dollars, and it may or may not be worth it, depending on how much you'll save each month.

Before you go through with a HARP loan, it's important to sit down and run the numbers. Talk to your lender to get an idea of how much the refinance could save you and how much the closing costs might be. Then calculate how long it will take for you to break even. Make sure you plan to stay in the house for at least that long. Otherwise, the refinance may not actually save you any money.

Alternatives to HARP loans

If you don't qualify for a HARP loan or don't feel that it's your best option, there are alternatives you can consider. If you have an FHA or USDA loan, then you won't qualify for a HARP loan, but you may qualify for a streamline refinance. Like HARP loans, streamline refinances don't require an appraisal or a lot of paperwork to get approved. Some enable you to roll the closing costs into the new mortgage or avoid closing costs altogether by paying a higher interest rate -- though if you do this, you'll pay more over the loan term.

If you have at least 5% equity in your home, you can try for a conventional refinance instead, though some lenders require you to have at least 20% equity in order to do this. You'll still have to pay closing costs, but depending on your situation, you may be able to score a better deal this way than you could with a HARP loan.

A HARP loan can be worth it if you qualify and you owe a lot more than your home is worth. If you're going to take advantage of it, now is the time to do so -- before the program ends. But if you don't qualify or miss out, don't worry. There are still other ways you can refinance even if you don't have a lot of equity.

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