A loan modification differs from refinancing your mortgage in that it entails changing the terms of your existing loan rather than replacing it with a new one.
Refinancing, on the other hand, is when you replace your loan with a new loan.
To avoid foreclosure, many people may seek to change their mortgage payment or their loan term for several reasons.
If this is your situation, you will have to contact your loan servicer and tell him about your finances to get information about how to modify loans.
Here we will discuss some mortgage relief options that your mortgage servicer may offer you and the fees you may be subject to if you decide to go for a mortgage loan modification.
What Are the Ups and Downs of Loan Modifications?
A loan modification will have a considerably milder negative influence than a foreclosure, bankruptcy, or a succession of late payments.
Benefits Of A Loan Modification
Some of the possible benefits of a loan modification from your mortgage lender on your mortgage payments are that it may (depending on the terms of your mortgage):
- help you get current on your monthly mortgage payments if you’re behind
- lower your monthly payments- reduce the interest rate on your loan
- extend the term of your home loan
- forgive a portion of your debt
Downsides Of A Loan Modification
Loan modifications, on the other hand, might have a negative influence on your credit score. An initial drop in your credit score is possible after a loan modification.
If your loan modification is only for a limited period, you’ll have to resume your original mortgage conditions and repay the amount that was deferred before obtaining a new purchase or refinancing.
Lenders may want to see a record of 3 on-time payments following permanent adjustments to assess your repayment capacity for a new loan.
If you’re currently on the monthly payments of your mortgage, it’s a good idea to look into your alternatives and see if you can apply for refinancing so you can change the terms of your loan.
Who Can Get a Loan Modification?
In general, homeowners must be behind on their mortgage payments or about to go into default to be eligible for a loan modification.
Homeowners must meet specific criteria to be eligible for a loan modification.
If you are unable to refinance or are experiencing a long-term financial hardship, if you have several months’ worth of mortgage payments outstanding or will soon fall behind, or if refinancing is not an option because of your income or other factors, a loan modification may be the best alternative.
The loss of a job, the death of a spouse, an illness that has reduced your capacity to repay your mortgage on the original terms, or a disability or calamity that has prevented you from doing so are all examples of good cause for loan modifications.
Can A Loan Modification Be Denied?
Yes, a loan servicer can deny a loan modification.
A mortgage loan is a contract, and the lender is not required to accept a loan modification and the final determination is usually in the hands of the mortgage company.
Borrowers who will never be able to repay their mortgage loan, as well as borrowers who do not respond to lender demands, are unlikely to obtain a loan modification.
Revising your mortgage contract and your current financial situation with the assistance of a professional law firm, especially if you are facing financial hardship, can save you money and help you find solutions, like loan modification programs that are perfect for you. Mortgage underwriters are usually dealing with numerous files at one time and it is important to make sure you have the right attorney on your side to ensure the mortgage company did not mess up in reviewing your file for a modification. As this does happen, with the right attorney you can avoid a modification denial for mortgage company mishaps.
How Long Is a Mortgage Modification?
The duration of your loan modification procedure will depend on the severity of your situation. Expect it to take anything from one to three months.
Is a Mortgage Loan Modification Permanent?
A loan modification will permanently change your home loan terms, such as the interest rate, repayment term, monthly payment, and in some cases a reduction in the principal mortgage balance.
After your loan modification has been accepted, your interest rate and loan conditions are set in stone.
If you are choosing between modification programs because you are experiencing financial hardship, it is advisable to work with your existing loan conditions with the help of an expert that can help you understand solutions.
Why Do I Have To Pay a Fee For A Loan Modification?
If you try to change the terms of your loan through a loan modification process, you may have to pay a fee.
These fees may be charged by the lender or by a professional who helps negotiate the loan modification.
A mortgage modification does not include any closing costs, but your existing lender may charge a processing fee.
If you get a mortgage modification that extends the term of your loan, you’ll pay more interest throughout the life of your loan.
Do I Have To Pay Back Loan Modifications?
There are different types of loan modifications.
Your payment amount will depend on the type of mortgage loan modification you receive.
On the backend, your loan servicer may apply a lower interest rate to the principal of your loan and you must reimburse it later.
If you get a principal deferral loan modification, your lender reduces the amount of money you have to pay each month.
Nonetheless, the amount of principal your mortgage servicer has deferred will be due when the property is sold or as time goes by and it applies to your existing mortgage.
Different Loan Modification Programs
Conventional loan modification
There are different ways to modify a loan, depending on who provides the loan. Fannie Mae, Freddie Mac, and private lenders all have their processes and criteria for modifications.
Freddie Mac and Fannie Mae offer a Flex Modification program that can help borrowers reduce their mortgage repayments by about 20%.
The interest rate, forbearing a portion of the principal balance or extending the loan’s term to make monthly payments more affordable for the homeowner are all common in a Flex Modification.
The Department of Veterans Affairs, the Department of Housing and Urban Development, and government loans are not eligible for Flex Modification programs.
FHA loan modification
The Federal Housing Administration also provides its loan modification solutions to assist struggling borrowers to make their payments more manageable.
FHA borrowers who require additional help might be eligible for the FHA-Home Affordable Modification Program (FHA-HAMP).
To qualify for a loan modification or the FHA-HAMP program, FHA borrowers must participate in a trial repayment strategy. This entails making timely payments under the new terms for three months.
VA loan modification
Veterans and military personnel who have loans guaranteed by the Department of Veterans Affairs can inquire about VA loan modifications with their servicer.
A VA loan modification can roll back missed payments and other delinquent housing expenses like unpaid property taxes and homeowners insurance.
The borrower and servicer collaborate to establish a new repayment schedule that is achievable for the veteran once these charges are added to the loan.
A Streamline Modification is available to some homeowners whose VA loans have been suspended.
The streamlined modification procedure does not need as much documentation as a VA loan modification plan, but it has two extra criteria:
- The combined principal and interest payment must decrease by at least 10%.
- To show that they can make the modified payments, the borrower must complete a 3-month trial repayment plan.
USDA loan modification
Missing mortgage payments (including principal, interest, taxes, and insurance) may be rolled back into the current loan balance under a USDA loan modification.
USDA modification plans allow you to extend the term of your loan up to 480 months, or 40 years in total, which can help you save money on interest.
Using a mortgage recovery advance, servicers may cover up to 30% of the homeowner’s unpaid principal balance.
Benefits Of Going Through A Mortgage Loan Modification With An Attorney
At Babi Legal Group, P.L.L.C., you will always meet with a competent and experienced attorney who will assess your financial and mortgage situation to determine whether you qualify for loan modification assistance and what benefits you can reasonably expect to obtain from a loan modification.
Many homeowners try to obtain a loan modification without the assistance of an attorney, only to find their request denied for a slew of reasons. In fact, many of these applicants would have actually received a loan modification had they initially hired an attorney to help them navigate through the maze of paperwork and red tape of the mortgage companies.
If you are behind on your mortgage payments and facing foreclosure or if you merely want to see if a loan modification can help you, don’t hesitate to contact Babi Legal Group at 248-434-4110 today for a free consultation!