If you are looking to change your mortgage terms or lower your interest rate, you may consider a home refinance loan. This is a wonderful option for many. However, what if you live in an area where the property values have dropped? A traditional refinance loan requires a minimum of the existing home equity, and many find that they do not qualify because of depressed property values.
The good news is the HIRO loan program is a government refinance program that offers an alternative refinancing option. Here we take a closer look at the HIRO program, how it works, who can qualify, and any other alternative options available to you.
What is the HIRO program?
The Fannie Mae High Loan-to-Value Refinance Option (HIRO) is a program designed to help homeowners in areas where the property values are stagnant or even falling. In these areas, many homeowners lost equity in their homes, leaving them ‘underwater.’ The goal of the HIRO program is to provide loans to these homeowners, allowing them to refinance into a lower interest rate and monthly payment.
How does the High LTV Refinance Option (HIRO) program works?
Traditional refinance loans require you to owe less than 80% of your home value. The HIRO loan program lets you refinance with a much lower loan-to-value (LTV) ratio. In fact, there is no maximum ratio if you refinance into a fixed-rate mortgage. There are also some differences regarding how a HIRO loan works.
Let’s take a closer look.
Refinancing with HIRO still requires a completely new mortgage and a similar application process. However, this application process offers much more flexibility than traditional mortgage applications. For instance, in many cases, income verification, employment verification, asset checks, and home appraisals are often not necessary. This is partially due to the initial eligibility requirements for the HIRO program, which we will discuss below.
In addition, there are no credit score requirements to qualify for a HIRO loan. As it is intended to replace your current loan, lenders are not required to pull a credit report or require a minimum credit score. There is also no debt-to-income ratio ceiling that must be met for the HIRO program.
Interest rates for any loan are based on the risk posed by the lender. Because you have little to no equity in the home when you apply for the HIRO program, the lenders are taking higher risks than with other refinance loan options. For this reason, HIRO loans often have a slightly higher interest rate than traditional refinancing options.
Who qualifies for the HIRO mortgage program?
If you are considering a HIRO loan, you must meet several qualifying factors to be eligible.
- Your original mortgage must be dated October 1, 2017, or later
- Your existing mortgage must be at least 15 months old
- All payments must be up to date on your current mortgage. This means no late payments within the last six months and a maximum of one late payment in the last year.
- Your current mortgage must be first-lien financing and not a second mortgage.
Key qualification factors
In addition to the requirements listed above, the HIRO program also has additional key qualification factors for program approval.
1. Fannie Mae backs current mortgage
Because Fannie Mae backs the HIRO program, their first key qualification factor requires that Fannie Mae back your current mortgage. Given that they are taking the risk on this high LTV loan, they want to limit the program to loans they originally approved. If Fannie Mae does not back your current loan, there are additional alternatives we will discuss below.
2. Minimum and maximum LTVs
Traditional refinance loan options require a maximum LTV ratio to qualify. However, as we mentioned, the HIRO program does not have a maximum limit. They do, however, have a minimum LTV ratio. This minimum varies based on the property type. For example, the LTV for a 1-unit primary residence is 97.01% or higher. A 1-unit second home has a minimum LTV of 90.01% or higher, and a 1- to 4-unit investment property has a minimum LTV ratio of 75.01% or higher.
3. Net tangible benefit
The final key qualification factor for the HIRO program is the loan must provide you with a net tangible benefit, meaning you must gain an advantage by refinancing your mortgage. Examples of a net tangible benefit include:
- Lower interest rate
- Lower principal and interest payment
- Reducing the terms of your loan
- Changing from an adjustable-rate mortgage to a fixed-rate
When should you seek a high LTV refinance?
If you are interested in achieving any of the net tangible benefits above, such as a lower interest rate or shortening the term of your loan, then a mortgage refinance loan is a great option. If the amount of equity in your home is not enough for a traditional loan, then a HIRO program loan offers you the perfect solution.
Alternatives for HIRO program
Because the HIRO program requires current loans backed by Fannie Mae, it is not open to all homeowners. There are, however, similar programs designed for those with loans backed by Freddie Mac or FHA, VA, and USDA borrowers.
Freddie Mac Enhanced Relief Refinance (FMERR)
The Freddie Mac Enhanced Relief Refinance (FMERR) program is very similar to the HIRO program, with the main difference being it is for those with current loans backed by Freddie Mac. Also, one important requirement is that your current loan must have been originated on or after November 1, 2018.
Streamline Refinance is a refinancing option for FAH, VA, or USDA home loans. This loan option works for those with little to no equity in their home requires no credit check or income verification, and follows the basic qualifications of the other programs.
A HIRO loan is a great option for those with little to no equity in their home refinance to reduce their interest rate or monthly payments. At Hero Home Programs, we understand how intimidating the home loan refinancing process can be to homeowners, and we are here to help.
Contact us online today to learn more about how we can help you navigate your refinancing and make the most of your homeownership.