Important Factors To Consider
Remember that the bank or servicing company is working for the lender’s best interest. You may receive an offer that isn’t an affordable modification plan. Adjustable rates or step-up plans rarely work. Press your lender to provide you with modification terms that you can sustain in the long run.
Don’t feel pressured to accept the first modification offer that comes to the table. Terms are negotiable. Make sure all options for adjusting the terms of the loan have been explored. Depending on what the lender modifies, you could end up paying a lot more over the life of the loan.
There is almost always a positive solution for both parties, one that agrees with the bank’s bottom line and is an affordable long-term solution for you. If you need help, remember to find a qualified, experienced, and licensed counselor to help you through this process.
Keep Your Credit Rating Up
Check into your credit rating – it will be a factor in whether you get approved or not. Order copies of your credit report from all three major credit agencies, Experian, Equifax and TransUnion – you’re entitled to one free copy a year from each – and review them for errors or omissions that might be hurting your credit.
Also, do what you can to improve your credit rating or, at least prevent it from declining. Pay down major credit card debt, if possible; otherwise, avoid piling up debt if finances are tight. Pay all bills on time, including utility payments but particularly installment debt like your auto loans and credit cards. If you’re in a pinch, be aware that creditors generally won’t report you as late unless you miss a payment by a least 30 days – but try not to get in the habit of “juggling” delayed payments.
The Property Has To Be Your Primary Residence To Qualify For A Hamp Modification
This is a hard-and-fast rule with HAMP. However, lenders may be more flexible with private modifications. They may be willing to modify a loan on a rental property, since it produces the income needed to pay the note. In some cases, they may even approve a modification on a second home, if they think they’d take a big loss retaking it in foreclosure. But generally speaking, you have to live there in order to get a loan modification on the mortgage.
Getting a loan modification can be a difficult and frustrating process. But nearly 700,000 U.S. homeowners succeeded in obtaining permanent mortgage modifications through the first eight months of 2011, according to the HOPE NOW Alliance. Maybe you can join them.
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Why Do I Need An Attorney For Loan Modification
Attempting to modify your mortgage is like a part-time job. The paperwork is exhaustive and not so easy to understand. Unlike applying for a mortgage, the servicer or lender will not assist you. An experienced lawyer can guide you through the loan modification process. There are also numerous situations where homeowners were led to believe that the bank was working with them on a loan modification and trying to help them avoid foreclosure, but the bank foreclosed on their property anyway. If your mortgage lender is pursuing foreclosure while also deciding on your loan modification application, or if they are in violation of federal and mortgage service rules, a lawyer can help you enforce your rights. If the lender denies your modification request, you will need more time and assistance to appeal. An attorney can show why the loan servicer made a mistake in dismissing the loan modification application and may be able to push for approval of your modification request.
When Should You Use A Loan Modification
It makes sense to seek a loan modification before a refinance in some instances. Lets take a look at some of those times.
- Your loan is underwater. An underwater mortgage is when you owe more money on your home than your property is worth. Your loan can go underwater if you miss payments early in your term or you live in an area where property values are falling. Most lenders wont allow you to refinance more than your home is worth. Though there are streamline options that can allow you to change your rate and term without an appraisal, you must meet specific criteria to qualify for each option. Ask your lender for a direct modification to simplify the process and help you when youre underwater.
- You need a principal reduction. You cannot reduce your mortgage principal with a refinance. A loan modification may be able to help if you know you owe too much money on your home and youre likely to go into foreclosure.
- Youre behind on your monthly payments. A lender wont allow you to refinance unless youre current on your monthly payments. Some types of refinances for underwater loans require that you have at least six consecutive on-time payments to qualify. Seek a modification if you cant catch up on your monthly payments before you apply.
Get approved to refinance.
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Qualifying For A Loan Modification
Qualifying for a mortgage loan modification can be rough. With all the horror stories out there, you can’t blame some borrowers for just not wanting to try. But there are some general guidelines that can give you a pretty good idea of whether you can succeed or not.
Part of the confusion is because lenders have their own standards apart from the government’s Home Affordable Modification Program . For example, HAMP guidelines specifically state that you don’t have to be delinquent on your mortgage to qualify. However, many lenders won’t consider you for the program until you’ve started missing payments.
Another thing is that HAMP isn’t the only type of loan modification out there. In fact, you’re about twice as likely to qualify for a non-HAMP loan modification as you are to get one under the government-backed program. These private, or proprietary, loan modifications are done according to the lender’s own rules, whereas HAMP sets forth certain requirements that lenders must adhere to.
That being said, there are some basic guidelines that you have to meet to qualify for any type of loan modification:
How To Apply For A Flex Modification
The first thing you should do after determining whether you have a mortgage owned by Fannie Mae or Freddie Mac is to reach out to your loan servicer to apply for the Flex Modification program. If youre less than 90 behind on payments, you must complete a borrower response package.
The package should include:
- A complete and signed mortgage assistance application.
- A complete and signed IRS Form 4506-T or 4506T-EZ, which grants access to your tax return transcript.
- Income documentation, which varies based on the type of income.
- Hardship documentation, which varies based on the nature of the hardship.
Theres a streamlined application option for borrowers who are at least 90 days behind that doesnt involve completing and submitting a borrower response package.
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Write A Letter Of Hardship
The final piece of your loss mitigation application will be a letter of hardship. This document must clearly explain why youre having trouble making your mortgage payments.
When writing a letter of hardship, you should be sure to include a header that provides your name, contact information and loan number. In the introduction, you should specify why youre seeking a loan modification.
Your body paragraph should concisely explain the circumstances that have made or will likely make you fall behind in your payments and why the situation is out of your control.
You should conclude by letting the lender know youre seeking a loan modification so you can uphold your obligation, and provide;the name of any financial counselor youve consulted during the process.
How To Apply For A Loan Modification 3 Simple Steps
If you are currently facing a financial hardship and want a loan modification, then know that time is of the essence. You have a greater ability to negotiate with your lender earlier on in the foreclosure process than later. Get started today:
Nonprofit housing consultants from a HUD-approved agency can provide you with:
- All available loan modification options
- A customized action plan
- Help in negotiating with your lender
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How To Calculate The Best Expense Ratio For A Loan Modification
Lenders analyze total monthly expenses relative to income before approving a loan modification.
Homeowner hoping to keep a home out of foreclosure may ask the lender to restructure the mortgage payment through a loan modification. In preparation for the loan modification application, you might run the numbers on your own to determine whether you are a likely candidate for this foreclosure prevention measure. To calculate the best expense ratio for a loan modification, you must gather your total recurring monthly expenses, as lenders do.
What Is A Mortgage Loan Modification: The Loan
A mortgage loan modification changes the terms of your existing mortgage agreement to make your monthly payments more affordable.
This type of loan is designed for homeowners whove fallen behind on monthly mortgage payments because of huge financial burdens.
Your lender has to agree to a mortgage modification and write it up in a contract. Make sure everything looks good before signing it never feel pressured to do anything because of the circumstances.
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What Does It Mean To Refinance Your Mortgage
You replace your existing loan with a new mortgage when you refinance. This allows you to change the terms of your loan. You can also use your equity to take cash out of your home. You might want to refinance to:
Unlike a loan modification, you dont need to refinance with your current lender. Unsatisfied with your lender? A refinance can allow you to switch to a new lenders system.
Reduce The Interest Rate
Shaving your interest rate can reduce your monthly mortgage payments by hundreds of dollars. A $200,000 mortgage payment with an interest rate of 4% on a 30-year fixed-rate loan is about $955 per month, compared to the same loan with an interest rate of 3%, which comes out to $843 per month.
This is similar to refinancing your loan, but the difference is that you dont have to pay closing costs or fees.
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Does Everyone Qualify For A Loan Modification
Not everyone that is struggling to make their monthly payments can qualify for a loan modification. Generally, homeowners must either be delinquent on their mortgage or facing imminent default. Imminent default means that the homeowner is not delinquent yet, but there is a high probability that they will be delinquent in the near future.;
Some reasons for imminent default can include:
- The loss of a job.
- The loss of a spouse.
- Disability or illness that has affected your ability to work and repay your mortgage.;
Mortgage Loan Modification Faq
What happens when you get a loan modification?
The goal of a loan modification is to help a homeowner catch up on missed mortgage payments and avoid foreclosure. If your servicer or lender agrees to a mortgage loan modification, it may result in lowering your monthly payment, extending or shortening your loans term, or decreasing the interest rate you pay.
How do I get a mortgage loan modification?
Contact your mortgage servicer or lender immediately to alert them of your financial hardship and ask about loan modification options available. Be ready to provide all documentation requested, which can include financial statements, pay stubs, tax returns, and more.
How long does loan modification last?
Expect your loan modification process to take anywhere from one to three months, according to finance and insurance expert Karen Condor. Once your loan modification has been approved, the changes to your interest rate and/or loan terms are permanent.
Does loan modification hurt your credit?
A mortgage loan modification under certain government programs will not affect your credit. But other loan modifications may negatively impact your credit and show up on your credit report. However, since your mortgage usually must be in default to request a modification, your financial difficulties are probably already on your credit report, explains attorney Elizabeth Whitman.
Can you be denied a loan modification?How much does mortgage modification cost?
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Are Loan Modifications Permanent
Loan modifications usually become permanent once you successfully complete a trial period of paying as agreed. Most loan modifications have a trial period of three months during which you must prove the ability to meet the new payment requirement. As long as you make the payments and you meet the eligibility requirements, the loan modification will become permanent.
Applying For Mortgage Modifications
There are multiple types of modifications that may be available to ensure that a homeowner can continue making mortgage payments. The loans interest rate may be lowered, or a loan may be converted from an adjustable-rate mortgage to one with a fixed interest rate. The term of the loan may be extended, allowing it to be paid off through lower payments over a longer period of time. In many cases, it is in a lenders best interests to work with a borrower, since they will be likely to suffer financial losses if they need to foreclose on a home and place it up for sale.
To qualify for a loan modification, a borrower must usually have missed at least one payment, and they must have experienced financial hardship that has made it difficult or impossible to meet their obligations. Applicable forms of hardship may include an illness that has resulted in significant medical expenses, a long-term disability, the death of a family member who provided income used to pay ongoing expenses, or a natural disaster that has resulted in catastrophic property loss.
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How To Get A Mortgage Modification
If you’ve missed one or more mortgage payments or, better yet, know you’re about to miss a payment but haven’t yet gone delinquent, contact your lender and explain the reasons for your difficulty making payments.
Be prepared to discuss your financial difficulties in some detail. You’ll have to document your hardship as part of a formal application, so gather relevant paperwork before you call so you’ll be prepared to answer questions.
The lender will likely require you to apply for the modification in writing, and to submit proof of income and expenses before and after the onset of your hardship. That could include tax returns, pay stubs, monthly bills and statements, plus information on your savings and any assets you may have .
If your mortgage is backed by any number of federal agencies or programs, you may qualify for a government mortgage modification plan:
While the CARES Act only covers federally backed mortgages, private lenders may be extending comparable relief programs to their borrowers.
When Should You Refinance
Lets take a look at a couple of times when it makes sense to take a refinance over a modification.
- Youre not underwater on your loan. Though there are special refinance programs that can help you adjust the terms of an underwater loan, refinancing is much easier when you have equity.
- You want to take cash out of your equity. You can take cash out of your home equity to cover outside bills if you meet equity standards. This isnt possible with a loan modification.
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How Much Does A Mortgage Loan Modification Cost: $$$
Some lenders charge a processing fee for making this type of mortgage adjustment. Its best to check with your specific lender to determine what types of fees may be included in the loan modification process.
But heres some good news: There are no closing costs for a mortgage modification.
There are also other options to consider, including refinancing and forbearance.
Loan Modification Vs Refinance
A refinance is typically the first plan of action for homeowners who need a lower mortgage payment.
Refinancing can replace your original loan with a new one that has a lower interest rate and/or a longer term. This may offer a permanent reduction in mortgage loan payments without negatively affecting your credit.
However, borrowers going through financial hardship might not be able to refinance.
They may have trouble qualifying for the new loan due to a reduced income, lower credit score, or unexpected debts .
In these cases, the homeowner might be eligible for a mortgage loan modification.
Loan modification is usually reserved for homeowners who are not eligible to refinance due to a financial hardship.
Mortgage modification is usually reserved for borrowers who do not qualify for a refinance and have exhausted other possible mortgage relief options.
With a loan modification, you work with your existing bank or lender on modifying the terms of your existing mortgage, explains David Merritt, a consumer finance litigation attorney with Bernkopf Goodman, LLP.
If youve defaulted on your existing mortgage, chances are your credit has been negatively impacted to the point where a new lender would be wary to give you a new loan.
Typically a refinance is not possible in this situation, says Merritt.