One of the most heartbreaking ways to lose your home is if you can’t make your mortgage payments or if you’ve fallen behind on them. For borrowers who are in a situation where their house is on the verge of foreclosure, there is still some hope. Introducing… Loan Modification.
In a nutshell, loan modifications can make your life stress free by ensuring you pay your current mortgage and save your home from foreclosure.
In this article, we will take a deeper look at what loan modification is all about.
Little More about Loan Modification
A loan modification occurs when the lender changes the loan terms. Loan Modification is an acceptable agreement between the lender and borrower. In it, the lender gets paid and the borrower keeps the house. The modification may be a decrease in the interest rate, extend of the payback period, or a new type of loan.
In most cases, loan modifications are only available in circumstances wherein the borrower is unable to make full payments and their credit is not sufficient to refinance the loan.
For such cases, the option of refinancing is the ideal solution.
Under What Circumstance Should A Borrower Choose The Loan Modification Route?
Loan Modification is a tool for people who are in a lot of trouble and have no other way to save their homes. It is not for everyone, and it is important to speak with a professional to see if it is the best option for your particular situation.
A borrower who is experiencing a temporary setback is eligible to request help from the lender with their mortgage. In some instances, a lower payment could help the borrower get through the difficult patch and prevent foreclosure on their home.
Generally, loan modifications occur when one is unable to repay the original loan. The attorney or workout company will help you negotiate modification procedures.
How Do Loan Modifications Work?
Although loan modifications can be requested for any type of loan, the most typical loans for which they are requested are secured loans such as mortgages. In the event of possible foreclosure, the lender may be open to modifying the terms of the loan after he/she has concluded that a foreclosure would be a more expensive route than a loan modification which is beneficial to both parties in the long run.
Are You Qualified For A Loan Modification?
It’s not possible to get a loan modification for everyone who’s having a hard time paying their mortgage. To be eligible, homeowners must either be behind on their mortgage payments or be delinquent— they are paying now but there is a risk that they will delay.
Some of the eligibility criteria for a loan modification include job loss, spouse death, and permanent physical or mental issues/injuries that render you disabled and unable to repay the mortgage.
What Are The Benefits of modifying your Loan?
One of the main benefits of an extended term is that it directly affects your annual interest rate. Your 30-year mortgage can become a 40-year mortgage. In exchange for this, you will receive the following benefits:
• A reduced fee makes it possible to provide the borrower with some respite to make it through.
• The opportunity to keep the house as banks would choose to avoid going through the costly process of foreclosure whenever possible.
Loan modifications allow the homeowner to continue making payments. While at the same time keeping the house is the most beneficial resolution for both concerned parties.
What Are Some of the Drawbacks Of Getting a Loan Modification?
A modification to an existing loan may be a costly but necessary lifeline. The following are the drawback of choosing this path:
• Your loan will most likely end up costing you more money in the long run. This indicates that the greater the number of years added, the more interest you will pay throughout the course of the loan.
• Loan modification is a time-consuming process. We need to get all the necessary documentation such as pay stubs, bank statements, and tax returns. Also, you have to fill out a spreadsheet that compares your income to your expenses. It is mandatory for loans to get modified. You will need to submit a hardship statement explaining why you need a loan modification.
• Depending on how serious your situation is, your loan modification will not approve. You need to provide evidence that you are capable of repaying the loan to win the lender’s trust. If you are actually unable to afford the home, the bank may decide to deny your request for loan modifications. Bank may leave you with the option to short-sell your house.
Loan Modification Programs for You.
- 1. Conventional loan modification (Flex Modification Program) – If you want conventional mortgages, you have the option to go through FMP. FMP will help you reduce monthly payments by 20%. Also, you can extend the term up to 40 years and lower the interest rate.
- FHA loan modification – FHA loans include various strategies for borrowers. It gives them the option to reduce payments with an interest-free loan for 30% of the borrower’s balance. The borrowers will only have to pay the remaining part of the loan. After that, he can pay an interest-free loan when the home is about to sell. In this Pandemic, the borrowers also have the option to get a lower rate and also a 25% cut on the monthly payments. FHA borrowers have the option to extend loan terms up to 40 years.
- VA Loan modification –Borrowers with VA Loan can add their missed payments back to their loan balance. Borrowers will work with lenders for a new manageable repayment schedule. They also have an option o extend their loan.
- USDA loan modification – Borrowers backed with USDA loans have the option of modifying the mortgage. It gives an option for you to extend the term for 4o years, lowered the interest rate, and get a “mortgage recovery advance”. All these programs in the end increase the loan balance due and the total interest paid. If you have a permanent loss of income your best bet might be selling and moving to a less expensive home or renting.
How to apply for Loan Modification?
1. Collect data about your financial position.
2. Make a plan for your case.
3. Contact your servicer
What Happens to Your Credit Score When You Get a Loan Modification?
If you are considering going for a loan modification, chances are your credit score has already slipped. The majority of the borrowers involved in the procedure are already past due on their payments.
While you’re going ahead with the loan modification process, the “paying by modified terms” remark is on your credit report.
While you’re paying your loan on time, there may be a chance to have a positive impact on your credit score. This positive impact in turn makes up for the previous negative impact.
If you are not sure about this, there is an option for refinancing the loan at a later date as well if necessary.
To know more about the options available to you, contact Elite Properties NYC, one of the companies that buy houses for cash in any condition.
As the rate of unemployment continues to climb, a growing number of people are actively looking for methods to reduce their monthly expenses and save money. For those who have a mortgage on their heads, there is a high possibility that you may find yourself in a situation where your funds are dry and you’re not able to pay for your mortgage.
It is important to remember that falling behind on your mortgage payments can have a far more significant impact on your credit score than failing to pay your rent on time. In the worst-case scenario, it could put your house at risk.
Nonetheless, there’s always a way out of such situations and this article will take you through the various consequences you may have to face as well as the options available to help you sail past the storm.
Let’s get right down to business.
What Are the Consequences of Falling Behind on Mortgage Payment?
When this happens, your lender will notify the credit bureaus that you have gone way past your due dates and your credit score will tumble.
There are some situations where you may go past the 120-day late mark on your mortgage payments, which would then begin the foreclosure process. After that, there will be a long legal battle where the lender will take control of your house and you will be forced to leave the property.
The mortgage lender’s intention is to sell the home and use the money to pay off the remaining sum on your mortgage.
What Are The Stages Leading To The Foreclosure Process?
Delaying payment on your mortgage can often lead to foreclosure, which can be a long and difficult process. Foreclosures only occur once you’ve missed mortgage payments for more than 120 days. Your creditor will investigate other possible methods of payment before beginning the foreclosure process.
Typically these are the stages leading up to the foreclosure:
Letter with Late Fee
At this stage, your lender will send you a letter. In the letter, they will specify the amount due, the date of payment, and the late fees.
At this stage, your lender will submit a “notice of default” to the county’s office. Depending on who is in charge of servicing your loan, this term might extend anywhere from 30-120 days. You still have a chance to sort things out with your lender during this period by negotiating a revised repayment plan or any other amicable solution.
If you have surpassed more than 3 months, the lender will proceed with the foreclosure process on the property. You will be forced out of your house, and it will be sold either through a real estate company or will be auctioned.
Also read: Reasons For Refusal Of Mortgage Pre-Approval
What options are available to you if you want to avoid foreclosure?
Lenders are aware that many people are going through difficult times right now, and they want to help those who ask for it.
If you’re feeling overwhelmed by the pressure of making decisions about your home, don’t worry- there are options available to you. You can always get in touch with your lender if things start to escalate, but there are typically some alternatives that they will offer you before it gets to that point. Here are some of the most common options:
The lender will give you a new loan to cover up for the delayed payments in addition to what you owe on the property. This new loan will come with a different interest rate and the terms and conditions will also be different. With this option, your credit score will not dip, and will help you ease off your monthly payments a bit.
This is an option in which you and your lender mutually devise a strategy that is suitable for your financial situation and enables you to start making payments. You will strive towards continuing to make payments as well as making up for the late fees over time.
In this option, the mortgage company agrees to halt your mortgage payments for a while temporarily. The delayed payments will be added to the end of your loan.
The mortgage company will change the terms and conditions of your existing loan. This includes the amount owed, the interest rate, and the duration of the loan. It’ll help you reduce the premium amount you are going to pay the lender each month.
Sale of the Home
Selling your home may be the best financial option if it is worth more than you owe on it. In today’s market, a home in good condition can sell quickly. Just remember that missing mortgage payments during the sale process can damage your credit score. If possible, try to keep up with your payments while you sell your home.
If you can work out an arrangement to live with friends or family at little to no cost, renting out your home could be a good option as long as you can collect enough rent to cover your mortgage payments. Just keep a few things in mind before becoming a landlord:
- You’ll typically pay increased property insurance costs on the property.
- You’ll be financially responsible for home maintenance and repairs.
- You’ll need to arrange to repay any mortgage payments you miss while setting up the rental.
If you’re having trouble selling your home, you may be able to do a short sale. In a short sale, the lender agrees to let you sell your home for less than what you owe on the mortgage. Even though it will lower your credit score, a short sale is better for your credit than a foreclosure. And in some states, you may even be able to avoid paying a deficiency judgment (a penalty that lenders can sometimes get when the value of the collateral on a loan is less than the amount of the debt).
Deed in Lieu of Foreclosure
If you agree to a deed in lieu of foreclosure, you are essentially agreeing to vacate the home and give the keys back to the mortgage lender. This is often seen as a more positive outcome than foreclosure, as it can be less costly and time-consuming. Additionally, some mortgage lenders may offer a “cash for keys” arrangement, where you are given money to help pay for a new place to live.
While a deed in lieu of foreclosure does have some negative consequences for your credit score, they are typically not as severe as those associated with foreclosure.
How do prevent yourself from falling behind?
When you’re behind on the mortgage payments the experience is never pleasant. Loan Modification will only be the last resort in case of dire emergencies.
At times there are some lenders that may force you to evacuate your house. This will impact your credit score, and at times, few will do both. If you are in survival mode, you can try to reduce collateral damage and help you get back on track.
Irrespective of how bad your financial outlook may be, there are various solutions. Finding solutions proactively can help you avoid foreclosure or bankruptcy.
When you feel like you’ve no other option left, we have the solution. Elite Properties purchase properties in as-is condition and can save you. We will help you avoid foreclosure and assist in your future.