Don’t let the banks beat you down! My goal is to educate people so that they are armed with as much information as possible and not naïve in thinking that this economic hard spell is over.
Every situation is different. You may believe that your situation is too difficult or that you don’t qualify for our help. On the contrary, we want to help as many families as possible; both who live within the many cities we work in, as well as encouraging those in other communities with our guidance and expertise.
I will explain all of the incentives and options with loan modifications and other options that are available to you.
What are loan modifications? There are many misconceptions of what loan modifications are. In a nutshell, a loan modification is a change in the loan terms with the lender. These changes are permanent, with the intention of a reduced payment that the homeowner can afford. Loan modifications are similar to refinances (also called refis); however your original loan will stay with the same bank.
Who can qualify for a loan modification? You need to qualify for it. It is a very similar process that you went through when purchasing the home, except it is a reversal process. Instead of proving you have enough income flowing in to pay for the home, you now need to present a valid hardship. The banks do not consider inflation or your personal expenses going up as a true hardship, like they might be willing to do for a short sale. A hardship can only be considered if your income goes down. Anyone who has experienced a reduction of their income could potentially qualify. Yet, there is a threshold on what the bank is willing do.
To determine your eligibility, answer these questions:
- Do you currently reside in the home (you are not renting it out)?
- Is your monthly mortgage payment more than 31% of your gross monthly income?
- Are you employed?
- Can you prove your current income?
- Does your loan amount conform to the limitations of Fannie Mae (between $417,000 up to $729,750)? Please keep in mind that these are ceilings, so if your loan is less than $417,000, you may still be eligible.
If you answered yes to most, if not all of these five questions, then you may have a chance of qualifying for a loan modification with at least one of the programs
What is Truth about principle reduction and will I receive this? A principal reduction basically reduces the equity that was borrowed. The Net Present Value test usually discards the use of any principal balance reductions for it to make sense to the bank.
Short Sale vs. Loan Modification – Which is Best? Well, the answer all depends on you as the homeowner and what your goals are. It also depends on what your capabilities are.
Loan Modification
- You stay in your home
- You get a better mortgage with better terms
- Credit will be affected but only through the trial period
- Process to get a mod can take up to 6 months or longer
Short Sale
- Home is sold for less than amount owed and you relocate
- Credit is impacted and shows as a settled account
- Process to complete the short sale can take up to 6 months or longer
- In most cases the mortgage debt is forgiven
- Some government plans put cash in your pocket at closing
- Allows you to leave on your own terms
64% of loan modifications are late again within 6 months
Many foreclosures happen to people that are in the middle of the loan modification process. So if this is the route that you are going to take, you need to take responsibility for yourself and ask them to postpone the sale date if there is one everytime you talk to them.