The Home Affordable Refinance Program (HARP) and the Self-Employed

The Home Affordable Refinance Program (HARP) forms a significant part of President Obama’s laudable $75 billion Making Home Affordable plan. This program aims at alleviating the problems encountered by a multitude of homeowners who are not able to refinance their present mortgage or who are hard put to settle their payments due on their existing home loans. The program may be described as an astute strategy to restore the real estate market in a sagging economy.

During an economic recession such as the present one, it is no surprise that many people are defaulting on mortgage payments. If this is allowed to continue, then it can only lead to foreclosure. Please remember that banks would rather facilitate your paying the mortgage than enforce foreclosure proceedings.

HARP: Benefits and Eligibility

HARP eases the pressure and helps with the long term affordability of repaying your loan. But HARP is available only for homeowners who have home loans operated through either of the two mortgage holders taken over by the federal government--Fannie Mae or Freddie Mac. Whether you are employed by another entity or self-employed, the pre-condition is your home loan must be owned or guaranteed by Fannie Mae or Freddie Mac.

You may be self-employed, but you will still be eligible for HARP as long as the following terms are met:

• You must be the owner and occupant of a one- to four-unit home.
• As stated earlier, the loan on the home is owned or guaranteed by either Fannie Mae or Freddie Mac.
• When you apply, you have not been more than 30 days in arrears on your mortgage payment in the last year.
• Alternately, if your loan liability is less than one year, you have never defaulted on payment.
• The amount you owe on your first lien mortgage is below 125 percent of the current market value of your home.
• You have the ability to honor the new mortgage payments.

HARP for Self-Employed

If you are self-employed, you need to submit copies of your latest tax return covering a full year together with all schedules. As a self-employed individual, to successfully negotiate HARP, you will need to create a clear picture of your finances. Your loan service agent will conduct a financial analysis and verify all of your regular expenses including car loans, family support expenses, mortgage payments and credit cards.

It is obvious that being approved for HARP assistance is more complicated for self-employed workers with irregular incomes than for employees with a steady, straightforward income. It simply requires a little extra bookkeeping and homework. If you are self-employed,  to  furnish a  copy  of  your latest  quarterly  or  annual  Profit  and  Loss  Statement, you should contact your CPA (Certified Public Accountant) or the licensed tax professional who will assists you in compiling your tax documentation.

It is advisable to furnish business income tax returns for the previous two years. Bankers insist on verifying your income from your business as a crucial indicator of your capability to repay the mortgage. Most businesses provide for every possible expense in order to suppress profits for tax purposes, but mortgage lenders will be satisfied with a high net profit to approve a large loan for you.

Banks want to ensure that your business is sound and will continue to yield income in the future as well. Current balance sheets and year-to-date income statements, viewed alongside business tax returns, can indicate trends of growth or stagnation in your business. Also submit your personal income tax returns for the past two years. Banks will be keen to see documentation about your personal income as well as your business income to know if you have supplementary income from sources other than your business.