Loan Modification in Commerce Township, MI
Loan modifications are a way to reduce your monthly payments. It is important for you to know that there are some risks involved with loan modifications and it will depend on what kind of mortgage you have as to whether or not this option is available to you. But if these options do work out, the possibilities for increased savings can be significant!
- Lower your monthly payments
- Increase your savings
- Clean up and improve credit
- Improve the stability of a troubled mortgage
What is a loan modification program
A loan modification is a legal resource that allows you to adjust the terms of a mortgage contract in order for payments to be lowered and/or extended. The term “loan modification” can refer either to an agreement that has been reached between two parties or alternatively it may involve legal action if one party refuses to work with the other’s requests.
In any case , there are a number of factors that will determine the likelihood of success for any negotiations, such as
- The type of mortgage you have (fixed rate or adjustable)
- What your credit score is
- Your monthly income and expenses.
If these options do work out, the possibilities for increased savings can be significant!
How does a loan modification affect your credit
A loan modification is characterized as a “positive change to an existing obligation.” The important thing, though, is that you make timely payments on the modified mortgage or else it will revert back to its original terms and your credit score may suffer again. For this reason (and others), it’s in your best interest to pay your mortgage on time.
While it’s true that a loan modification can improve the terms of the original obligation, it is not always possible to completely get rid of debt so long as there are other debts besides just mortgages.
A second reason why some people may want to think twice before seeking a loan modification is because they believe this will show a lack of financial discipline.
That said, no matter the downsides, modifying your loan is almost always going to be better than not paying at all.
How to qualify for a loan modification
If you have a Fannie Mae or Freddie Mac loan, the two agencies will offer what is called mortgage assistance.
FHA loans are not eligible for this type of modification since they do not require monthly payments from homeowners on their mortgages.
Modifications can also be applied to most conventional and VA home loans.
The requirements of a loan modification are as follows:
- Loan must be in default or delinquency status
- Homeowner can show “good faith” efforts to pay monthly mortgage payments.
- Minimum amount of equity is required for the property, typically around 20%. Equity may also need to be proven with sufficient documentation.
- Mortgage payment-to-income ratio is no more than 36%.
- The home owner may need to show a regular income. Income can be verified by providing recent pay stubs for the most recent year and two years of tax returns, along with proofs like utility bills or bank statements showing direct deposit into an account.
- Homeowner must also provide documentation that he/she has been on an income-based plan with mortgage payments for at least three months.
- Mortgage must be current and show no late or missed payments in the past 12 months.
- The loan amount cannot exceed $417,000 nationally as of October 31, 2009 or a lower county limit set by Fannie Mae or Freddie Mac where the loan is originated.
Loan modification approved now what
The home-owner must be able to provide recent pay stubs for the most recent year, and two years of tax returns in order to qualify.
In addition, they have to show a regular income that can be verified by utility bills or bank statements showing direct deposit into an account. It is also important that payment on their mortgage be current and show no late or missed payments in the past 12 months.
How long does a loan modification take?
If the customer qualifies for loan modification, approximately three to four months. Keep in mind that mortgage payments may be higher and will not always work with your budget.