Loan Modification Frequently Asked Questions
Q: What is a Loan Modification?
A: A Loan Modification is when the bank allows a change in the terms of your existing mortgage. The purpose of a loan modification is to help a homeowner who is struggling to be able to afford their mortgage. The most common changes to the terms are reduction of interest rate and monthly payment, extension of the term of the loan, recapitalization of past due amounts, late fees waived and in some cases principal deferral or forgiveness.
Q: Who qualifies for a loan modification?
A: Anyone that is having trouble paying their existing loan may qualify for a loan modification. It is dependent on a number of different requirements and even if a homeowner qualifies based on initial review that does not mean they will be approved for a modification. The lender will generally look to see what has caused the homeowner to fall behind on the mortgage(hardship), how their finances have changed, and the overall ability to make the loan affordable. While this seems simple, in practice an application can be denied for small variations from the guidelines that the lender is looking for. No matter what the situation, it is impossible to know whether the lender will approve a workout solution as the decision can be based on many factors outside of our control.
Q: What if my credit is bad?
A: A Loan Modification is not based on credit. The banks are trying to make a good loan out of a troubled loan.
Q: What if I have no equity or I am upside on my home?
A: It does not matter! Some banks are doing principal deferrals/reductions, which could mean the bank will discount the total loan amount to the current value of your home or close.
Q: What if my income is too low?
A: You will need to show the bank that you and all others in your household together can afford a new payment. This is done within the Pre-Qualification step when you start the process.
Q: What should I expect the terms to be on my new loan?
A: Banks have rapidly changing guidelines for Loan Modifications. A bank will typically modify your loan into a loan you can afford and continue to pay. This may include a lower interest rate, payment reschedule, principal reduction, longer terms or any other modification that will make and keep the loan a performing loan.
Q: How much can I save by doing a loan modification?
A: You can save hundreds a month, depending on your loan amount. Remember, a loan is typically for 30 years. So the Loan Modification that saves you $500 a month really equals $150,000 over the life of the loan.
Q: Does every bank do loan modifications?
A: NO. Most banks will do some form of a loan modification but there are many lenders that do not offer modifications. Even lenders that do offer programs may decide not to offer a workout solution to any homeowner. In most cases the lender is under no obligation to offer a workout solution.
Q: How long does the process take?
A: Every situation is different, and the time it takes to complete the loan modification process varies. Sometimes the bank is especially difficult to deal with, or overwhelmed and this can cause delays. You can avoid further delays by making sure that requested information and documentation is provided timely. A normal process can take from 3 to 6 months to complete but may take longer.
Q: Is there anyway to prevent foreclosure?
A: The best way to avoid foreclosure is to make your mortgage payments timely. If you have fallen behind on your mortgage payments and are in foreclosure the only sure way to get to resolve this quickly is to pay the arrears to get the loan current. A sucessful modification will also reinstate the mortgage and get the homeowner out of foreclsure but the process can take a number of months to complete.
Q: Can anyone guarantee a loan modification?
A: NO. The final decision to approve or decline a loan modification is your lenders decision. Anyone who guarantees that they will get you a modification is not being truthful and you should be skeptical about engaging them.
Q: Should I stop paying my mortgage?
A: It is our strongest recommendation that homeowners who can afford thier mortgage, make thier payments timely. You should be skeptical of anyone who tells you to stop making your moretgage payments. Even worse is if they ask you to make your payment to them.
Q: Should I stop communicating with my lender?
A: This is not a good idea. It is important to maintain contact with your lender during a period of hardship. Without contact your lender may decide that you do not want to keep your home, or that your home has been abandoned. Even if you hire someone to help you with your mortgage issue you should maintain contact with your lender.
Call us today to discuss your situation and get started!