Loan Modification: Help for Your Home, Hurt for Your Credit Score.
If you are in trouble with your mortgage payment, you may be applauding recent government programs to help you negotiate a loan modification. You may have already been helped through Making Home Affordable or through a similar program at your bank. Now with recent program changes that encourage principle reduction and offer help making payments when you are unemployed, you may feel assured that you will make it through a tough time with your home intact.
This is great news, but there is a down side. In the process of saving your home, you may lower your credit score. Anytime you are delinquent, have your payment adjusted or loan terms adjusted, you take a credit score hit.
Some homeowners who opted into a trial modification under Making Home Affordable are finding this out the hard way. They make a few payments at the lower amount, only to find out their score has dropped. Being in the trial program is no assurance they will even be accepted for permanent modification, yet they are penalized about 100 points just for asking for help.
The credit industry is, of course, quick to defend this practice of penalizing those who even ask for a change in loan terms. The government realizes this is a side effect. Consumer advocates deplore the practice on the grounds that people should not be zinged for trying to do the right thing. All of these parties encourage people in trouble to ask for help before their homes go into foreclosure, but the credit score drop is a disincentive to many.
However, for most who seek help, this is an irrelevant side effect, especially if they are already behind on payments and close to losing their home. It’s like telling people on the sinking Titanic that they will be billed more if they chose a red lifeboat instead of a blue one. If you’re drowning, you might prefer the blue one, however, if the red one is the only one in sight, paying more for red seems pretty reasonable.
Remedies such as loan modification, bankruptcy, and even short sale or foreclosure are last resort remedies that you might choose when you have no other options. In a perfect world, you would be able to pay your bills without needing help. In the real world, if you need help, your best option is to use the help accessible to you. The time to ask is – as soon as you need it. There may be a credit score impact with any remedy, but the impact is less the earlier you ask.
Express Homebuyers will buy your home for cash. Call us today at 1-[dynamic_phone] or check out our helpful website. We will make you an offer on your first call, provide free reports to help you make your selling decision, and even offer options to chat with one of our helpful consultants.
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