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Loan Modifications
Loss Mitigation
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FAQs 1) What exactly is a loan modification? A loan modification is exactly what it sounds like. Your lender will help you keep your home by modifying your loan in some way or another. The two most common options used in a loan modification are lowering your interest rate to make your payment affordable again, or extending the term or your loan from 30 years out to 40 years, which results in a lower payment as well. Or they may use a combination of both. With the new government programs available homeowners, the government is giving lenders a substantial financial incentive to lower interest rates as low as 2.5% if that’s what it takes to make your payment affordable once again. 2) Do I qualify for a loan modification? You should qualify if you meet the following criteria…. -You have a single-family home that you currently live in; rental investment properties will not qualify -Your unpaid principal balance is less than or equal to $729,000 -Your loan was originated before January 1, 2009 -Your mortgage payment including taxes and insurance equals more than 31% of your gross before tax income -Your mortgage payment is no longer affordable due to a significant change in your financial situation; like a major decrease in income or a large increase in expenses 3) What about my second (or third) mortgage? If you currently have a second or third mortgage, you can still qualify under the new government guidelines. However only your first mortgage will be eligible to be modified. 4) How do I know my lender will modify my loan? Actually, you don’t. It is up to each individual lender, and the particular circumstances of your case. However, the government is offering substantial monetary incentives to all lenders to get them to help homeowners remain in their homes by modifying their loan. And it will actually cost your lender less in the long run to modify your home loan rather than foreclose your property. 5) Will the modified loan include taxes and insurance? Yes; your new modified payment will include an escrow mounts set aside every month for the payment of taxes and insurance; even if your current loan does not. 6) How low can my interest rate go? The new government programs that are providing your lender with substantial financial incentives to lower your interest rate to 2%; if that is what it takes to keep your payment below 31% of your “before tax” income. Also if your interest rate is below the current market interest rate, that rate will be fixed for the next five years. After the first five years, your interest rate can increase no more than 1% per year until it reaches the cap is included in your modification agreement. 7) I owe more than my house is worth; do I still qualify? Yes; and the government will assist you by helping you reduce your outstanding loan balance. This works by making your modified loan payments on time. For every month that you make your payment on time, the government will pay an incentive to your lender that reduces the total balance of your outstanding loan. This principle reduction will be applied directly to your outstanding loan balance every year if you make your modified loan payments on time; and over five years you could have your outstanding loan balance reduced by $5,000. This gives you an incentive to make your payments on time, and your lender is getting a financial incentive from the government to help you reduce your standing loan balance. 8) Does the government do my loan modification for me? The government does not modify your loan for you; these government programs only give a financial incentive to your lender to make it easier for you to qualify for a loan modification. Neither HUD, FHA, nor any other government agency will do anything to modify your home loan for you. You still have to contact your lender yourself to see if they will modify your home loan. Or you can use one of our partners to ensure that you get the best loan modification available to you. 9) Do I have to be late on my mortgage to qualify for a loan modification? No; if you are having problems making your current loan payment, and think that you may become late in the immediate future, you may be able to qualify for a loan modification. However you will have to backup your case with documentation. Your lender is not going to lower your interest rate to 2% just because you want; you will have to justify to your lender why you need to have your loan modified to stay in your home. 10) What paperwork will I need to qualify for a loan modification? Pretty much the same paperwork that you needed to qualify for your home loan in the first place. You will need proof of income such as W-2s or pay stubs, you’ll need a copy of your last year’s tax returns, information on a monthly payment amounts of credit cards, car payments, student loans, etc. You will also need to provide information on any second or third mortgage and the monthly payment you have on the home currently. Lastly, you will need what’s known as a hardship letter. This is a simple letter explaining how your circumstances have changed and why your income has decreased or your expenses have increased to justify your lender modifying your loan. - |
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