How Loan Modification Works
With the current state of the housing market, you may find it hard to meet the terms of your mortgage. You may be in default, bankruptcy, or foreclosure, or you may just have trouble paying your mortgage. A frequent situation these days, you may have decided to sell your home to head off problems, but you’re finding it hard to sell.
In those situations, the federal government has created a loan modification program that allows qualifying homeowners in financial distress to modify the terms of their original mortgage. Some states also have load modification programs, which can also be called mortgage modification or loan restructuring programs.
The loan can be modified in many different ways:
- Reducing the principal
- Forgiving or reducing late fees or other penalties
- Extending the loan’s term
- Reducing the interest rate
- Changing from a floating to a fixed rate
- Capping the monthly payment as a percentage of homeowner income
Qualifying: If the lender and the mortgage holder agree, any loan can be modified. However, in order to qualify for the federal loan modification program, you must meet certain conditions:
- You must be able to demonstrate financial hardship, such as the loss of a job or other loss of income;
- You must show that you are having difficulty making mortgage payments;
- You must occupy the home;
- The home must be your primary residence;
- Your current load balance must be less than $729,750; and
- Your mortgage must have originated before January 1, 2009.
Incentives: As part of the federal program, your lender will receive an initial payment from the government of $1,000 and an additional $1,000 a year (for up to 3 years) as long as you, the borrower, continue to pay the mortgage. If you make payments on time and don’t sell your home, you can have up to $1,000 of principal reduced each year for five years.
Monthly Payments: Lenders who participate in the program must reduce monthly payments to no more than 38% of the homeowner’s monthly income. The government will then contribute money to bring down payments to no more than 31%. In order to lower the payments, the lender must first reduce the interest rate, to as little as 2%. If this reduction doesn’t meet the 31% mark, the lender can extend the loan to up to 40 years or withhold loan principal at no interest.
If loan modification isn’t the answer for you, call us today at (877) 804-5252 or contact us to get an offer in hours from Express Homebuyers.