Home Loan Modification

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What is a Mortgage Modification?

 

It almost goes without saying that your home is one of the biggest investments you'll ever make, but it's much more than that for most of us. Our home is where we find comfort at the end of the day. It's where we watch our children grow up. It's where we gather to eat dinner with friends and family. It's a safe place. But what happens if, all of a sudden, you find yourself having trouble making your mortgage payments?  What if you were in jeopardy of losing that safe haven? Fortunately, there are options.


The good news is, in most cases, banks simply don't want to foreclose on your home, and they'll do whatever they can to help you keep it. It almost always makes better financial sense for the bank to help you keep your home so that you can continue to make monthly payments, and they can continue to collect the interest. If you can show that your setback was only temporary, there's a reasonable chance that you can resume your payments. In this scenario, there are even options available to you that may not only help you keep your home, but that may make the payments more affordable.


If foreclosure is unavoidable, there are options that can help keep a foreclosure proceeding from further damaging the homeowner's credit. These options can include:


  • Selling the home. This can be a good option for those who have equity in their home.
  • Short sale or pre-foreclosure sale. A short sale allows homeowners to sell their home for less than the amount owed on the mortgage. (This should only be done with bank approval.)
  • Deed-in-lieu of foreclosure. This option would allow the homeowner to basically give the property back to the lender.

  

These options are all better than an actual foreclosure for a homeowner whose situation isn't likely to improve, but what if your setback was only temporary? What if you got behind on your mortgage due to a job loss, but have since found another job and you just need help to bring the loan current? Or, what if you've suffered a reduction in income, but you could afford to make your payments in the future if they were reduced? In these situations, you may be eligible for a modification under either an internal plan through your mortgage company, or through a government-sponsored program. So what exactly is a mortgage modification?


A mortgage modification is exactly as it sounds. The terms of your mortgage, such as your interest rate, monthly payment, repayment term, or outstanding principle, are changed (modified) to help you remain or become current on the loan. Depending on the program, there will be certain criteria that must be met in order to be approved for a modification. Since there are many different programs, we'll focus on the most common plan, which is the government-sponsored Home Affordable Modification Program (HAMP).


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Pros and Cons of Loan Modification

 



Pros of Loan Modification

If you are behind on payments and the foreclosure process already started, the modification process might put the brakes on the foreclosure and encourage the lender to move forward.

If you use a federal program, it will not affect your credit.


Home Affordable Modification Program

 is a government program that will not harm your credit but has strict guidelines the lender must follow. (note: to qualify for HAMP you must have purchased your house before January 1, 2009)


Cons of Loan Modification

Some loan modifications are a debt settlement, and it can affect your credit depending on your the type of program in which you enroll. Debt settlement will hurt your credit score, even if there is an agreement with the lender. It will show on your report that you didn’t honor the original deal.


Once the modification process has started, you cannot switch to another until the review is complete. For instance, maybe you decide you would prefer to short sell your home instead. You will need to complete the process of modification review first.

 

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Benefits of a Mortgage Modification

 

Some of the benefits of opting for a mortgage modification include:


  • Avoiding foreclosure or a short sale
  • Reducing your monthly mortgage payments
  • Protecting your credit history from foreclosure or delinquent payments
  • Making your loan more affordable in the long-term


One of the main benefits of a loan modification is that it can help borrowers and lenders avoid a foreclosure or a short sale situation. From the Mortgage Lenders perspective, cooperating with a struggling borrower is more cost-effective than finding a new customer. Modifying the terms of a mortgage may reduce the lender's long-term profit from interest payments, but it often costs lenders less than it would to manage and sell a foreclosed property.


Modification also makes monthly payments more affordable for people who experience financial hardship, fall behind on their mortgage payments, or fail to qualify for refinancing. Falling behind on just one mortgage payment can significantly harm your credit. According to FICO, missing a payment for one month can bring your score down about 40-100 points. Modifying your home loan can reduce your monthly payment, which will make it easier to catch up with your past due balance.

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Who qualifies for a Loan Modification?

 

It depends on the bank and their modification program. You don’t  actually have to be behind on your mortgage, but you need to be in danger of falling behind. 


Lenders do not have to provide you with a solution. Thankfully, they are motivated to help you find a way to manage the mortgage. They don’t want you to foreclose. It’s a significant financial loss for them.

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Understanding if you qualify

 

The first step in understanding if you qualify. If your Mortgage loan is owned by Fannie Mae or Freddie Mac then you have a loan insured by the Federal Housing Administration.

If you're currently experiencing financial hardship and you live in the home for the majority of the year, you may qualify.

It is important to show affordability, hardship and income. Under the government's program, your Debt to Income Ratio  is the most important factor in getting a loan modification.

If you had a loan modification in the past twelve months or your current Interest rate is 2.50% or less, you may not be eligible.

It comes down to "affordability", you simply may not be able to afford a mortgage. This is a sad fact, but true.

To better assist you, please call or email us with any of your questions.

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If you decide to become a client

 

The first step is a free consultation. This is an opportunity for you to share the details of your situation and ask questions. As part of this discussion we will try to gain a detailed understanding of your finances, the hardship you are encountering, and what your goals are. With this information we can offer our assessment about whether we believe a loan modification can be successful. It is important to note that not every homeowner will qualify for a loan modification and that the final decision to approve a modification is the lenders..

If you decide to become a client, we will request and review the necessary information including income documentation, bank statements, other income and expenses as well as the status of your loan to determine an affordable monthly mortgage payment. We will monitor the status of your loan with your lender and keep you apprised of the progress of your modification.

We then prepare the application to assure that it presents the most advantageous story to your lender. Once a submission is made to the lender, we follow up aggressively on a regular basis to assure that your application does not get held up. The bank employees tend to be less experienced and it is important to make sure that they do not misinterpret the information submitted or erroneously deny the application. Our experience with what the lender is looking for allows us to avoid many of the pitfalls that can draw out the process and end up in the application being denied.

If the application is accepted, the lender will make a modification offer. We go through offers made to assure that the lender has made the offer based on the correct information and guidelines. If any discrepancies are uncovered we challenge them with the goal of assuring the offer is the best one available. Most modification offers start with a trial period that requires the homeowner to make timely payments for a period of time (usually 3 months). Our expectation is that once the homeowner makes the timely payment required, the bank will permanently modify the terms of the loan. We stay engaged until the modification is complete because sometimes issues arise that jeopardize the modification from being made permanent. The main goal for your modified loan is that once completed you will be caught up on payments, in no danger of foreclosure, and have a mortgage payment that fits into your budget every month. Grab control of your future and the peace of mind that comes with it. Call us today to get started!