How To Get A Mortgage Loan Modification
Table Of Contents
- 1 How To Get A Mortgage Loan Modification
- 2 SO, WHAT IS A MORTGAGE MODIFICATION?
- 4 HOW DO MORTGAGE MODIFICATIONS WORK?
- 6 HOW YOU CAN APPLY FOR A LOAN MODIFICATION:
- 7 CONCLUSION
How To Get A Mortgage Loan Modification
Falling behind on your monthly mortgage payments could increase the chances of losing your home. However, depending on your current financial circumstances, you can apply for a mortgage loan modification. These plans help you to lower the monthly payments.
So, if you are struggling with your current situation an
d unable to make the payments on time, or you have missed one or two payments already, a mortgage modification might be helpful.
But how to get a mortgage loan modification? Continue reading the post to learn more about it.
SO, WHAT IS A MORTGAGE MODIFICATION?
The agreement between a lender and a borrower that amends or modifies a pre-existing loan is called a mortgage modification. In short, it is a significant alteration that your lender makes to the loan terms when you have missed a few mortgage payments or are about to miss one.
While lenders might use different options suitable for a mortgage modification, the goal is to avoid foreclosure. As such, the lenders can avoid the expenses incurred as a result of seizing and reselling your property. And, you avoid the risk of losing your home.
When you are about to apply for a mortgage modification process, it requires that you should elaborate on a relevant hardship. So, wh
enever you are thinking about a mortgage modification, it is wise to know whether your lender is providing one. That’s because most lenders don’t offer them.
HOW DO MORTGAGE MODIFICATIONS WORK?
A mortgage modification changes your existing loan. However, before you decide on one, you should know how mortgage modification works and how it can impact your loan.
- EXTENDING THE LOAN TERM – Certain mortgage modifications might extend the loan payment period. For example, your existing mortgage for 30 years might change into a mortgage for 40 years. While it gives you a longer time to repay, you have to pay more interest throughout the lifespan of the loan.
- REDUCING THE INTEREST RATES – If the interest rates are dropped, you can avail of the loan at lower interest rates. It can reduce the monthly payment significantly. However, check whether the rate is fixed or temporary. That way, there won’t be surprises later.
- SECURING A FIXED INTEREST RATE – This option comes in handy if you are dealing with a financial hardship associated with a periodic increase in payment. The lender might provide you with a fixed interest rate that will make the payments manageable and less expensive.
- REDUCTION IN THE PRINCIPAL AMOUNT – On rare occasions, a lender might lower the principal amount of your loan. As such, you get the major portion of the equity in your home. However, if you are provided with this opportunity, take advice from your tax consultant to make sure if the equity comes under taxable income or not.
- REFINANCING – While mortgage refinancing is not considered as a modification, it is a viable alternative when qualifying for another loan becomes difficult. In short, refinancing is all about generating a new loan rather than adjusting the existing mortgage. Lenders, in rare instances, suggest this option to borrowers who have assets that they can squeeze to cover the amount of loan.
HOW YOU CAN APPLY FOR A LOAN MODIFICATION:
If you feel like it could be beneficial to get a loan modification, contact your lender and request the process. Also, explain the various reasons that you are finding it difficult to make the payments on due time.
If you are eligible to get a loan modification, ask your lender about the steps involved in the process. Get prepared to discuss your financial difficulties in detail so that there is no confusion left. You might have to document the kind of hardships such as death or disability of a spouse, loss of income, etc.
These are all part of the application process. So, it is wise to gather relevant documents before you contact your lender. That way, you are prepared to answer whatever questions come your way.
Your lender might likely need you to apply for the loan modification in writing. Also, you have to produce significant proof of expenses and income after and before the starting of your hardships. The documents might include monthly statements and bills, pay stubs, and tax returns.
Also, you need to provide information regarding the assets and savings that you might have. These include real estate, investment accounts, and the like. Once you gather the requisite materials and consult with your lawyer, the application is submitted. The lender will let you know within the stipulated time.
Read 13 Tips On How To Survive An Upcoming Recession Today!
However, if the mortgage is backed by a few federal programs or agencies, you can even get a government mortgage modification option.
- The federal-backed agencies, Freddie Mac and Fannie Mae hold over 95% of mortgage loans in the US through the program called Flex Modification. These programs allow for adjusting the mortgage terms relating to a variety of financial hardships. However, there are certain criteria for qualifying for these programs. The mortgages have to be at least a year old and the applicants are facing foreclosure or they are defaulting on their payments.
- Home-owners with mortgages that are supported by the FHA (Federal Housing Administration) called FHA loans, might be eligible for several relief programs such as loan forbearance. It means the payments are reduced or suspended for a few months. After the term ends, the payments have to be repaid. Also, FHA loan borrowers can qualify for a partial loan from Housing and Urban Development. The loan could be utilized for forbearance payment and it isn’t due until the main FHA loan is paid off or the asset is sold. With other mortgage programs backed by the government. Borrowers can seek information from the lenders that issue such kinds of loans.
- Both retired and active service members or surviving spouses with loans supported by the US Veterans Affairs (VA) Department are eligible for loan modification programs designed to avoid foreclosure.
If you are in a deep financial mess and worried about losing your house, mortgage modification can benefit you a lot. So, reach out to your lender and find out how they can help you. It helps you to avoid foreclosure.
Disclaimer: This article is meant for educational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.