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How Do You Qualify For A Mortgage Modification

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How To Get A Mortgage Modification

Loan Modification Pros and Cons. Learn the Moan Modification Process To Get Approved.

If you’ve missed one or more mortgage payments or, better yet, know you’re about to miss a payment but haven’t yet gone delinquent, contact your lender and explain the reasons for your difficulty making payments.

Be prepared to discuss your financial difficulties in some detail. You’ll have to document your hardship as part of a formal application, so gather relevant paperwork before you call so you’ll be prepared to answer questions.

The lender will likely require you to apply for the modification in writing, and to submit proof of income and expenses before and after the onset of your hardship. That could include tax returns, pay stubs, monthly bills and statements, plus information on your savings and any assets you may have .

If your mortgage is backed by any number of federal agencies or programs, you may qualify for a government mortgage modification plan:

While the CARES Act only covers federally backed mortgages, private lenders may be extending comparable relief programs to their borrowers.

Forbearance Vs Mortgage Loan Modification

Forbearance happens when your lender agrees to pause your mortgage payments for a limited number of months.

Pros:

  • Forbearance can help you avoid foreclosure
  • Pauses or reduces mortgage payments
  • Gives you time to get back on your feet

Cons:

  • Adds missed payments to the end of the loan
  • May lower credit score

Alternatives To Mortgage Modification

If you do not qualify for mortgage modification, ask your lender about other options they may offer to help you avoid foreclosure. Potential options include:

  • Repayment plans: If you’ve missed a few mortgage payments but are able to resume regular payments, a repayment plan can temporarily increase your monthly payments until you’ve repaid the amount you missed , after which your payments will return to the normal amount.
  • Mortgage forbearance: A forbearance plan suspends or reduces your payments for up to 12 months, after which you must resume regular payments and repay the payments excused during the forbearance period. Forbearance programs are designed for borrowers with temporary financial challenges.
  • Refinancing: If you have good credit and interest rates are more favorable than they were when you got your original mortgage, it may be possible to refinance your mortgagethat is, replace your original loan with a new one with more affordable payments.

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Why Do I Need An Attorney For Loan Modification

Attempting to modify your mortgage is like a part-time job. The paperwork is exhaustive and not so easy to understand. Unlike applying for a mortgage, the servicer or lender will not assist you. An experienced lawyer can guide you through the loan modification process. There are also numerous situations where homeowners were led to believe that the bank was working with them on a loan modification and trying to help them avoid foreclosure, but the bank foreclosed on their property anyway. If your mortgage lender is pursuing foreclosure while also deciding on your loan modification application, or if they are in violation of federal and mortgage service rules, a lawyer can help you enforce your rights. If the lender denies your modification request, you will need more time and assistance to appeal. An attorney can show why the loan servicer made a mistake in dismissing the loan modification application and may be able to push for approval of your modification request.

Loan Modification In The Covid

What Is A Hardship Loan Modification?

The economic downturn caused by the COVID-19 pandemic has put millions out of work. More than a third of those responding to a U.S. Census Bureau survey in November and December 2020 stated they believed they face eviction from their apartment or foreclosure on their home in the next two months, reports Newsweek. If a federal agency or program backs your mortgage, a government mortgage loan modification plan may be an option:

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Loan Modification Vs Refinance

With a loan modification, your lender or servicer changes the terms of your loan with the goal of preventing default and foreclosure. While you can also change the terms of your loan by refinancing, in a refinance situation, you can shop around with multiple lenders for a new loan. Keep in mind, refinancing only works if current interest rates are significantly lower than the rate on your existing loan. Typically, borrowers dont refinance to avoid going into foreclosure, but rather to save money or take cash out.

Benefits Of Mortgage Loan Modification

Mortgage loan modification can save you from facing foreclosure, which is inescapable if you do not keep up with your mortgage payments. You may request your lender to change the terms, like reducing the size of monthly payments to align it with the change in your income, which in turn would also mean an extension of the total repayment period.

If youre lucky, your mortgage lender may even allow you to suspend payments for some time. Such a measure is aimed at giving you time to get out of your financial difficulties and the payments are resumed at an agreed date later. Once you start paying the lender again you may ask for an extension of the repayment period or make larger repayments so that the mortgage can be brought back on schedule.

Mortgage loan modification also allows you to protect your credit record. If you fall behind your mortgage payments, and choose to ignore the problem, your credit score will suffer. This means the next time you want a loan, you will have to pay a higher interest rate, and many lenders might even refuse to give you a loan. By being proactive, and seeking a modification in the terms before you miss a payment, you can keep your credit history clean.

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How To Qualify For Loan Modification

Generally, you can qualify for a loan modification if you’ve had an income loss or reduction that caused you to miss your mortgage payments. Or you have to be in imminent danger of falling behind on payments. But you must have sufficient income to make modified payments.

You’ll also have to meet other qualifications and make payments on a trial plan. Usually, the trial plan lasts three months.

Who Can Qualify For A Home Mortgage Modification

What is Loan Modification?

The top candidates for mortgage modification are homeowners behind on their payments, or in danger of falling behind, and those who are faced with potential foreclosure as a result of unanticipated or unavoidable financial hardship.

Contributing factors that may spur a home loan modification request include:

  • Unemployment or other loss of income
  • Increased living expenses
  • Death of a family member
  • You are ineligible to refinance
  • You are at least one regular mortgage payment behind or show that missing a payment is imminent.
  • A natural or declared disaster.
  • An uninsured loss of property.

Lenders almost always examine the borrowers claims and weigh them against the likelihood the customer can fulfill the obligations of the modified loan.

If a homeowners mortgage is backed by federal agencies or programs, they may be eligible for government mortgage loan modification programs.

Government mortgage loan modification programs include:

Some private lenders may be extending relief programs similar to the ones provided in the CARES act.

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Can You Refinance After A Loan Modification

If your lender agreed to a mortgage modification that reduced or extended your monthly payment amount or repayment term, you may need to wait 12 to 24 months after the modification date before attempting to refinance your home. The rule of thumb on when you should wait to refinance is not as strict as it may appear, and some lenders may allow you to refinance earlier than others. Even if the original modification agreement has not yet been completed, some lenders may still consider refinancing you. If you are considering refinancing after a loan modification, you should consult with your lender to determine whether a waiting period is required. If you are eligible for a loan, you should ensure that you meet all of your lenders requirements.

Qualifying For A Government Loan Modification Program

Fannie Mae and Freddie Mac, two government-sponsored agencies that back most of Americas conventional loans, offer a Flex Modification program for eligible borrowers. Generally, the program aims to reduce your monthly mortgage payment by 20%.

Heres the criteria to be approved for this type of mortgage modification:

  • You have a conventional mortgage thats owned by either Fannie Mae or Freddie Mac
  • The mortgage is at least 1 year old
  • Your loan is a first-lien mortgage, which means your lender will be repaid first if you default on the mortgage and the bank is forced to sell your home
  • The property is a primary residence, second home or investment property
  • Youre at least 60 days past due on the mortgage, or your lender has determined youre no longer able to afford your monthly payment.

Additionally, your loan servicer will check that you have a regular income. Unemployed borrowers might be eligible for a different program through unemployment forbearance.

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Qualifying For A Loan Modification

Qualifying for a mortgage loan modification can be rough. With all the horror stories out there, you can’t blame some borrowers for just not wanting to try. But there are some general guidelines that can give you a pretty good idea of whether you can succeed or not.

Part of the confusion is because lenders have their own standards apart from the government’s Home Affordable Modification Program . For example, HAMP guidelines specifically state that you don’t have to be delinquent on your mortgage to qualify. However, many lenders won’t consider you for the program until you’ve started missing payments.

Another thing is that HAMP isn’t the only type of loan modification out there. In fact, you’re about twice as likely to qualify for a non-HAMP loan modification as you are to get one under the government-backed program. These private, or proprietary, loan modifications are done according to the lender’s own rules, whereas HAMP sets forth certain requirements that lenders must adhere to.

That being said, there are some basic guidelines that you have to meet to qualify for any type of loan modification:

The Pros And Cons Of A Loan Modification

Nationstar Mortgage Loan Modification Application / What we found out ...

Borrowers who are unable to make their monthly payments may find it easier to do so with a home loan modification. Furthermore, refinancing may reduce monthly payments, but it is possible that a loan modification is the only option for some borrowers. Depending on the nature of your bank account and how well you work with your attorney, it can take six months to nine months to complete the process. In addition to negative credit, obtaining a loan modification may affect your credit. If you do this, it will appear on your credit report, which may lower your credit score, making it more difficult to obtain a loan in the future. Furthermore, loan modifications are fraught with risks, including the possibility of scams.

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Switch From An Adjustable

Switching from an adjustable-rate mortgage to a fixed-rate mortgage might not lower your existing payments, but it could help protect you from rising interest rates down the road.

Since ARMs are set up to have floating rates, they change with the market. For example, if your interest rate is 3.5% and the average rate rises to 4%, so will your rate. This can be a bad scenario if youre in a rising-rate environment. By locking in your interest rate, youre guaranteed to pay the same interest rate over the life of your loan, regardless of what the market does.

When Should You Use A Loan Modification

It makes sense to seek a loan modification before a refinance in some instances. Lets take a look at some of those times.

  • Your loan is underwater. An underwater mortgage is when you owe more money on your home than your property will appraise for. Your loan can go underwater if you miss payments early in your term or you live in an area where property values are falling. Most lenders wont allow you to refinance more than your home is worth. Though there are streamline options that can allow you to change your rate and term without an appraisal, you must meet specific criteria to qualify for each option. Ask your lender for a direct modification to simplify the process and help you when youre underwater.
  • You need a principal reduction. You cannot reduce your mortgage principal with a refinance. A loan modification may be able to help if youre likely to go into foreclosure.
  • Youre behind on your monthly payments. A lender wont allow you to refinance unless youre current on your monthly payments. Some types of refinances for underwater loans require that you have at least six consecutive on-time payments to qualify. Seek a modification if you cant catch up on your monthly payments before you apply.

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Applying For Mortgage Modifications

There are multiple types of modifications that may be available to ensure that a homeowner can continue making mortgage payments. The loans interest rate may be lowered, or a loan may be converted from an adjustable-rate mortgage to one with a fixed interest rate. The term of the loan may be extended, allowing it to be paid off through lower payments over a longer period of time. In many cases, it is in a lenders best interests to work with a borrower, since they will be likely to suffer financial losses if they need to foreclose on a home and place it up for sale.

To qualify for a loan modification, a borrower must usually have missed at least one payment, and they must have experienced financial hardship that has made it difficult or impossible to meet their obligations. Applicable forms of hardship may include an illness that has resulted in significant medical expenses, a long-term disability, the death of a family member who provided income used to pay ongoing expenses, or a natural disaster that has resulted in catastrophic property loss.

Contact Our Lake Forest Loan Modification Lawyers

Loan Modification – Do It Yourself! Mortgage Modification Application Explained.

If you are struggling to make mortgage payments or are facing the threat of foreclosure, you will want to understand the steps you can take to regain financial stability. At Newland & Newland, LLP, we can review your finances and advise you of your options. We will provide you with representation as you apply for loan modifications, and we will help you negotiate favorable terms that will allow you to continue making payments and living in your home. To get the legal help you need, contact our Lake County foreclosure defense attorneys at 847-549-0000 and set up a free consultation.

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You Have To Be Able To Show That You Can Stay Current On A Modified Payment Schedule

Lenders aren’t going to go to the trouble of giving you a loan modification if you’re still going to default anyway. That’s why unemployed persons can’t qualify for a loan modification, unless they have a spouse who’s still working – you need to have some way of making the payments, and unemployment compensation eventually runs out.

You’re going to have to be able to document your income, meaning pay stubs or W-2’s if you’re an employee, or tax returns, bank statements or profit-and-loss statements if you’re self-employed. If you’re depending on secondary sources of income to help pay your mortgage, you’ll have to document those as well.

Tips To Avoid Loan Modification Scams

Unfortunately, there are people who aim to wrongly profit off consumers facing difficult times by creating mortgage modification program scams.

Modification scams typically relay false promises of saving you from foreclosure, and instead, take your money. Scammers may charge high, upfront fees to receive assistance or ask you to sign over the title to your home, just to name a few examples, according to the Consumer Financial Protection Bureau .

Do your due diligence when seeking mortgage assistance and verify youre receiving legitimate loan modification help. The Federal Trade Commission recommends the following six tips to avoid a modification scam:

  • Dont pay any upfront fees.
  • Dont send your mortgage payments to anyone but your lender or servicer.
  • Dont fall for official-sounding names, such as the Federal Assistance Program, for example.
  • Dont rely on a forensic loan audit for foreclosure prevention. These auditors often charge hundreds and claim they can accelerate the modification process or cancel your loan.
  • Dont let anyone convince you to stop making your monthly mortgage payments.
  • Dont do business with a company that guarantees youll be granted a loan modification.
  • File a complaint with the CFPB online or by phone at 855-411-2372 if you believe you might be the victim of a mortgage modification scam.

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    Who Is Eligible For A Loan Modification

    To qualify for a loan modification, a borrower usually must have missed at least three mortgage payments and be in default.

    Sometimes, a borrower who has experienced financial setbacks, which makes a default imminent, can qualify for a loan modification. But not everyone in default under their mortgage is eligible for a loan modification, says Elizabeth Whitman, attorney and managing member of Whitman Legal Solutions, LLC.

    Borrowers whose financial setback is so severe that they will never be able to repay their mortgage wont receive a modification, nor will borrowers who have the ability to make mortgage payments either from their income or savings.

    Borrowers whose financial setback is so severe that they will never be able to repay their mortgage wont receive a modification

    In addition to providing a hardship letter or statement to your current lender, prepare to provide proof of income, two years worth of tax returns, bank statements, and other financial statements, says Condor.

    Be aware, however, that your mortgage lender is not obligated to provide a loan modification.

    Once a lender has an executed contract meaning the home loan they dont have to change it. Many are denied a mortgage loan modification, Gallagher explains.

    If the lender desires to modify the terms, per your request, then you have a starting point.

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