Short Sale and Foreclosure experts you can trust.
Short Sale and Foreclosure experts you can trust.
loan modification is an agreement between you and your mortgage lender to change the terms of your mortgage loan. A loan modification is different from refinancing your mortgage. Refinancing entails replacing your loan with a new mortgage, whereas a loan modification changes the terms of your existing loan. Loan modifications can lower your mortgage payments byways of:
There are many different types of loan mod programs. You may be eligible for one and not another.
If you’re struggling to make your monthly mortgage payments or have fallen behind, you may be at risk of losing your home. If you’re struggling to make your monthly mortgage payments or have already fallen behind, you may be at risk of losing your home. Depending on the circumstances, you may be eligible for a loan modification, which can lower your monthly payments and make it easier to stay on top of mortgage payments to avoid foreclosure.
Unfortunately, not everyone struggling to make a mortgage payment can qualify for a loan modification. Generally, homeowners must either be delinquent or facing imminent default, meaning they’re not delinquent yet, but there’s a high probability they will be.
Reasons for imminent default include the loss of a job, loss of a spouse, a disability, or an illness that has affected your ability to repay your mortgage on the original loan terms.
Loan mods are not easily granted, take time, and have to be justifiable. Here are 6 small steps to ensure your possibility of approval and aid your process:
BE WARY OF FORECLOSURE VULTURE SCAMS. Unfortunately, there are companies and individuals who prey on people in difficult and sensitive circumstances.
If you’re denied a loan modification, you can file an appeal with your mortgage lender. Consider working with a HUD-approved advisor who can assist you for free in challenging the decision and help you understand your options.
One potential downside to a loan modification: It may be added to your credit report and could negatively impact your credit score. The resulting credit dip won’t be nearly as negative as a foreclosure but could affect your ability to qualify for other loans for a time.
No, your modification may be temporary. If that is the case, you will likely need to return to the original terms of your mortgage and repay the amount that was deferred before you can qualify for a new purchase or refinance loan. After permanent modifications, lenders may want to see a record of 12 or even 24 on-time payments to determine your ability to repay a new loan.
If you are considering a loan modification and would like to discuss your options, contact us today for a no-obligation consultation.
Loan modification attempts to offer assistance to homeowners who might suffer from foreclosure. There are situations in which reduced monthly payments could solve the foreclosure. To qualify, families must document financial hardship and demonstrate the ability to meet monthly payments if they were modified.
Basically, you won’t qualify for most loan modifications if your financial situation has not changed. And you won’t qualify for loan modifications if you completely lose your income. You need to demonstrate that (1) something has occurred which makes it tough to pay your mortgage, but (2) not something so bad that you won’t be able to pay your mortgage at all. Maybe you took a pay cut at work or you lost part of your income. Maybe you’ve had a family emergency or hardship which is eating into your finances.
Regardless, you have to show that you can still make loan payments on your mortgage if they were only a little bit lower.
Different lending solutions will be willing to work with you in different ways. Usually the financial hardship must be enduring or have effects that are enduring. If you work on commission and have a great track record, one bad year will probably not allow you to qualify for a modification. But if you lose your job or suffer from a new and serious illness, you might be able to qualify.
You’ll also only be able to qualify if you lack the kind of cash reserves that allow you to keep making mortgage payments. For example, if you lose your job but have a ton of savings and easily liquefiable capital, your loan modification will probably not be granted. Most financial institutions require that you lack extra funds on hand.
Even if you lose your job or lose a source of income, you probably won’t be approved for a loan modification if you can still meet your mortgage payments. If your salary is cut in half but you’re still able to afford loan payments, you probably won’t get a modification.
Alternatively, if you’re going to end up in default, you won’t get a modification. A lender will only work with you if they think that you will avoid default through a modification. If you’re going to default in spite of a modification, they will allow the process to play out even quicker.
You’ll still need a relatively good credit history and score to qualify. Lenders want to see that what has happened really is an unusual financial hardship. They want to bet on someone who will pull themselves out and who can come up with a plan.
Loan modifications, ultimately, are possible only if the lender is convinced you can afford to make different payments. If you think that you can show this is the case, and lack the cash reserves and resources to get through your current payments, apply for a modification.
Refinancing can move your mortgage payments up or down, depending on your credit score and financial situation. Some people make a number of on-time payments on a 30-year mortgage for a couple decades and then are able to refinance the final part of the loan for a better deal. Other people need to lower their monthly payments and refinance for a longer term, taking on a higher interest rate as a compromise. Refinancing is for people with relatively good credit who are in a position that they can leverage for a different type of mortgage.
Modification, on the other hand, is for people who are experiencing financial hardship. Refinancing pays off your current mortgage with a new one, but modification alters the terms of your current mortgage.
The federal government has had a variety of loan modification programs in the past, like HARP and HAMP. Those programs have currently expired, however. But you can certainly check HUD—the making home affordable division of the federal government. You’ll get additional information on current programs and government assistance.
There are a few potential negative impacts of modifying your loans. First of all, this will probably be added to your credit report and could damage your credit score. Foreclosure is worse for your credit score, but loan modification is also bad.
Additionally, many loan modification programs are only temporary. It’s a great short-term solution but it might require you to return to higher payments in the future. You probably don’t want to think about loan modification as the final solution, but rather as a temporary solution which buys you time to find a long term solution.
Finally, when you modify your loan, the term of the mortgage is usually extended. It will take you a lot longer to pay off the loan and you’ll pay a higher lump sum because of additional interest.
Loan modifications can save your finances and your house from foreclosure. It can be a great way to still meet monthly payments, while reducing those monthly payments to a sustainable amount. Loan modifications can be difficult to get, but they are one of the borrower’s best tools in avoiding foreclosure. Here’s what you can do to increase your chances of getting a loan modification approved:
You’ll be eligible for loan modification if you’ve missed a payment or know that you’re about to miss a payment. Usually you’ll also need proof of financial hardship. There are a variety of reasons that you can list for financial hardship. Some common ones include illness or disability, death and loss of income, natural disasters, loss of property, spikes in housing costs, and divorce.
Speed really is critical to getting your loan modification approved. If you run to your lender after a couple missed payments and let them know that you’re not going to be able to make a payment, you’re giving them information they already know. It looks like you’re not on top of your finances, and it doesn’t exactly give them confidence that you’re telling the whole story now. If you don’t tell them you’re going to miss a payment before you do, how can they trust you that you’re going to be able to make modified payments now?
So to get a loan modification approved, move quickly to let your lender know that you’re going to have trouble paying. If you can tell them a month in advance that you’re going to struggle to make your payments, you’ve got a better chance of getting modification.
These days you can apply for a loan modification completely online. You should be able to apply through the lender themselves. Most lenders have loan modification programs that help qualified borrowers avoid foreclosure. Lenders also don’t want to go through foreclosure, because the process can be messy and time consuming.
The application will require you to explain your financial information. Sometimes the loan modification application will require you speak to your lender or servicer directly to explain your situation, so be prepared to talk through it in succinct, direct terms. Your actual application will be in writing, and you usually need to provide proof of hardship with the application. This may include pay stubs, tax returns, bills, asset information, and more. Any financial information that you provide—and more complete information is always better—will help your odds.
