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Save Your Home With Loan Modification


If you have a steady income but not quite enough for you to catch up on missed payments and continue making the payments you’re paying now, a loan modification can be the perfect solution. You keep your home with a lower monthly payment. If you’ve missed several payments, the lender may add the payments to the end of the term or scratch them off the balance sheet (rare, but it happens).

mortgage loan modification

If you are facing such a dilemma at the moment, you would want to know more about loan modification in detail and understand the thing that you need to do to pursue this option. To gain a general understanding of the concept and what it involves, you should make yourself clear about loan modification first before you go for it.

Try To Reinstate The Loan With Loan Modification

As soon as your lender decides to move forward with foreclosure, it refuses to accept payments from you. This may seem a little odd, but if the lender were to accept payments, it could be setting a precedent that would compromise its ability to collect from you if you were to stop making payments again.

To get back on good terms with your lender, you may be able to reinstate the loan. This approach consists of paying the lender a lump sum that covers all missed and late payments along with any penalties and fees. You can then continue making your monthly payments as if nothing had ever happened.

Reinstating usually requires that you borrow the money from your rich uncle or some other well-to-do family member or friend (or have them gift it to you).

Consider this option only if you have recovered from a temporary financial setback and can realistically afford your monthly payments plus any payments you would owe to the person who loaned you the money to reinstate. Never agree to a solution that places you back on the path to defaulting on your loan.

Don’t have a rich relative? Think again — you may have a rich Uncle Sam. At the height of the foreclosure epidemic, Fannie Mae announced a program called Home Saver Advance (HSA) that allows lenders to loan up to $15,000 to homeowners who’ve recovered from a temporary financial setback but are having trouble catching up on missed payments. With this program, you sign a separate promissory note for the amount needed to cover delinquent PITI (principal, interest, taxes, insurance) and other advances and fees, along with funds to cover up to six months in unpaid homeowner association (HOA) fees — 12 months if the fees are paid once a year.

Negotiating Forbearance With Your Lender and Considering Loan Modification

Forbearance is any delay the lender agrees to in moving forward with collection activities, including foreclosure. Forbearance may include a period of no required payments (special forbearance) or is accompanied by some sort of installment plan for catching up on missed or late payments.

Instead of paying the whole amount you owe in missed payments and penalties in one lump sum, you spread your payments over several months. If you’re $6,000 behind on payments, for example, the lender may let you pay about $1,000 extra per month for six months until you’re all caught up.

Like the option of reinstating, forbearance is practical only for those who’ve recovered from a temporary financial setback and can now afford not only their original monthly payment but also a little (or sometimes a lot) extra each month.

Get Debt Relief And Undo Credit Score Damage

You can avoid losing your home over foreclosure by opting for the government mortgage modification programs. These programs are administered by the U.S. Department of Housing and Urban Development (HUD). One of the federal mortgage debt relief programs is known as the Home Affordable Modification Plan (HAMP).

What is HAMP?

The federal mortgage loan modification program has been devised by the Obama Administration such that a struggling mortgage borrower will only be required to pay 31% of his/her monthly gross income. Primarily, HAMP has the following advantages:

– Extends the maturity deadline of the mortgage loans.
– Reduces the rate of interest on them.
– Cuts down the principal loan amount.

How to qualify for HAMP

You can use various online mortgage modification tools to find out whether or not you’ll qualify for the HAMP or any other mortgage debt relief programs. However, you can check out the below-mentioned list to know about the HAMP’s eligibility criteria:

– The first mortgage loan should have been taken before 1st January 2009.
– The lender should be willing to work and participate in the HAMP program.
– Monthly mortgage payment of the borrowers must be more than 31% of their gross monthly income.
– The house should be the principal home of residence of the distressed borrowers.
– The total outstanding balance should not be more than $729,750 for single-unit properties. However, this cap is higher in the case of 2-4 unit properties.
– Borrower is unable to stay current with his/her mortgage payments.

How to apply for HAMP?

Here is a 3-step guide to applying for a HAMP:

As soon as you realize that you won’t be able to keep up with the monthly payment, act at once to resolve the issue before it is too late. You must gather all your financial information like present monthly income and expenses before applying.

Find out all the details about your mortgage, loan agreement terms, and the lender.

Once you’ve completed the above steps, you may get in touch with a HUD-approved housing counselor for some free advice and to know about the various other debt-relief alternatives, besides the HAMP.

Mortgage modification and credit score damage

Many times, it has been found that due to lack of proper coordination between the borrowers and the lenders, it is the credit rating of the borrowers that suffer the most. This is because most of the time banks ask their borrowers to stop making the monthly payments.

This skipped monthly payment starts to show up in the credit report, thereby resulting in a damaged credit score. The notion that plays out here is that if borrowers keep making the monthly payments, then it confirms that they are not undergoing any kind of financial hardships.

However, borrowers can improve their credit score as well as credit rating by making timely mortgage payments or for that matter any loan repayments. Moreover, they need to avoid making too many hard inquiries within a short period.

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