Contact Our Lake Forest Loan Modification Lawyers
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.
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.
How To Get A Mortgage Modification
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.
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What Debt To Income Ratio Is Needed For Loan Modification
As a loan modification attorney, many people ask me what debt to income ratio is need for loan modification? There is, unfortunately, no universal answer that applies to all lenders and all situations, but a few themes have developed in regard to home loan modification. For homeowners seeking to apply for a home loan modification, here are a few things you may not know about what lenders are looking for when it comes to your debt to income ratio:
Debt is Broadly Defined for Loan ModificationMost lenders define debt, for purposes of what debt to income ratio is need for loan modification, quite broadly. Debt is anything that you actually pay on a monthly basis, but also includes things you arent paying or havent been paying as well. These items can include credit card payments, student loan payments, property taxes, homeowners association payments, homeowners insurance, home maintenance and other costs, car payments and expenses, food, child care, entertainment, education, clothing, etc. Many homeowners who find themselves in need of a loan modification have stopped paying some of these things, but the lender will still consider them as debts for purposes of your loan modification.
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You May Pay More In Interest Over The Life Of The Loan
If you need a mortgage loan modification, you may end up paying more for your home over the life of your loan. For example, say your modification involves changing your loan from a 30-year mortgage to a 40-year mortgage. You’ll end up paying an additional ten years worth of interest on the principal amount.
If you plan on selling, this might not matter as much. But if youre hoping to pay off the house, this can have a big impact on your future financial plans.
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Who Can Get A Mortgage Loan Modification
Eligibility requirements for mortgage modifications vary from lender to lender, but you typically must:
- Be at least one regular mortgage payment behind or show that missing a payment is imminent.
- Provide evidence of significant financial hardship, for reasons such as:
- Long-term illness or disability
- Death of a family member
- Natural or declared disaster
- Sudden increase in housing costs, including hikes in property taxes or homeowner association fees
- Divorce
Drafting A Hardship Letter
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What Is A Mortgage Modification
A mortgage modification is a significant change your lender makes to your loan terms when you are about to miss a payment or after you’ve missed one or more mortgage payments. Lenders use different methods to modify mortgages, but the main goal is to prevent foreclosure so you get to stay in your home and the lender avoids the expense of seizing and reselling the property.
Qualifying for a mortgage modification typically requires that you demonstrate a significant hardship. If you’re looking into a mortgage modification, make sure your lender offers this option, as not all do.
Entering into a loan modification will likely have a negative effect on your credit, but it will be less severe than you’d see with a foreclosureand you can take steps to improve your credit that will help you get back on track.
A mortgage modification will lower your monthly payments, though it may result in greater total costs for you over the lifetime of the loan. If you qualify for a mortgage modification, your payment reduction may be achieved through any of several methods, including:
Mortgage Modification Vs Refinance
A mortgage modification program allows you to modify your mortgage, as the name suggests. Your lender changes the original terms of your mortgage by extending your loan term or reducing your mortgage rate, for example but you keep the same loan.
On the other hand, a mortgage refinance involves replacing your existing mortgage with a new loan that has better terms, such as a lower mortgage rate and monthly payment or a more stable loan type, such as switching from an adjustable-rate to a fixed-rate mortgage.
How did HAMP differ from HARP?
Another government-backed program, Home Affordable Refinance Program , was created to help mortgage borrowers who were underwater on their loans meaning they owed more than what their house is worth to refinance their mortgage. That program expired in 2018.
Unlike HARP, HAMP didnt provide borrowers the opportunity to refinance. Instead, they were able to modify their loan and receive smaller monthly payments, providing them with a mortgage that was more affordable and sustainable without going through the refinance process.
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A Mortgage Loan Modification Will Affect Your Credit
Be prepared for your to go down when you apply for a mortgage modification. If you’ve already missed some payments, your credit score will also be negatively affected. Keep in mind, though, that the impact on your credit score from a mortgage loan modification will be less severe than the impact of a foreclosure. Foreclosures stay on your credit history for seven years. They can also automatically disqualify you from some future loan programs. This won’t be the case with a mortgage modification.
The good news with a mortgage modification is that you’ll be in a good position to rebuild your credit score. With a lower payment, youll have an opportunity to catch up on any missed mortgage payments. You may even have enough breathing room in your budget to catch up on other bills as well.
How To Calculate The Best Expense Ratio For A Loan Modification
Lenders analyze total monthly expenses relative to income before approving a loan modification.
Homeowner hoping to keep a home out of foreclosure may ask the lender to restructure the mortgage payment through a loan modification. In preparation for the loan modification application, you might run the numbers on your own to determine whether you are a likely candidate for this foreclosure prevention measure. To calculate the best expense ratio for a loan modification, you must gather your total recurring monthly expenses, as lenders do.
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Trouble Paying Your Mortgage You Have Options
You might be wondering about mortgage loan modification if youre:
- Experiencing financial hardship due to the coronavirus
- Having trouble making your monthly mortgage payments
- Currently in mortgage forbearance but worried about what will happen when forbearance ends
The good news is, help is available. But mortgage relief options are not onesizefitsall.
Depending on your circumstances, you might be eligible for a loan modification. Or, you might be able to pursue another avenue like a refinance. Heres what you should know about your options.
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All Or Some Of The Above
Some borrowers might need a combination of actions in order to make the monthly mortgage bill manageable. Depending on your need, a lender might reduce the interest rate and extend your loan so that your monthly mortgage payment is reduced in two ways, without touching the principal balance.
The lender likely will go through a cost-benefit analysis when assessing the type of modification that makes sense for both parties.
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How Do You Qualify For Loan Modification
Generally, to be eligible for a loan modification, you must:
. Besides, what is the debt to income ratio to qualify for a loan modification?
Loan Modification Debt-to-Income RatioUsually, a loan servicer prefers a maximum ratio of 36 to 50 percent, depending on the loan type and modification program.
Similarly, can you be denied a loan modification? If Your Loan Modification is DeniedYour lender may deny your modification for another reason. In many cases, you can appeal the decision to deny your loan modification. Loan modifications are purely voluntary on the part of the lender. You cannot force your lender to offer you one.
Also to know, how do you qualify for a loan modification?
Generally, to be eligible for a loan modification, you must:
How long does it take to get approved for a loan modification?
30 to 90 days
How A Loan Modification Could Help
- You avoid a foreclosure sale. Even if one is already scheduled, we may be able to postpone it while we review your information.
- You make lower payments. Your modified payment amount is based on your current financial situation and takes your hardship into account.
- It may be less damaging to your credit score than a foreclosure sale.
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How To Modify Your Loan
Every loan servicer has their own standards for loan modification. Most require you to apply with financial documentation that proves you need the modification. Some of these documents include:
- Proof of income: Your lender needs to know that you dont have enough income to cover your current mortgage. Proof of income can include a salary agreement or contract from your employer that states your hourly rate or annual income. Your lender might ask for a profit and loss balance if youre self-employed.
- Your most recent tax return: Your lender will likely need your entire tax return when you request a modification.
- Bank statements: Your lender might ask for bank statements to confirm your assets.
- A hardship statement: Your lender needs to know why you want a modification. Your hardship letter tells your lender why you can no longer make your monthly payments or pay for your entire loan balance. You may also want to include supplementary documentation along with your letter to further illustrate your situation. Things like medical bills or a termination letter from your previous employer can increase your chances of approval.
Contact your lender and ask how to apply if you think you qualify for a modification. Keep in mind that your lender may refuse your request. You may still qualify for a refinance if that happens to you.
Will Modifying My Mortgage Hurt My Credit
If the modification is federally backed and is a result of the coronavirus, then it will not be reported to the credit bureaus per the CARES Act.
Otherwise, some loan modifications might be reported as settlements or judgments, which could result in a ding to your credit. Be sure to talk to your lender about if their policy is to report modifications. However, a loan modification is not as damaging as a foreclosure.
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You Must Demonstrate That You Can Adhere To A Modified Payment Plan
Lenders wont bother with modifying your loan if you are still going to default. That is why jobless individuals are ineligible for loan modifications unless they have a working spouse you must have a source of income to make the payments, and unemployment benefit ultimately runs out.
You must be able to demonstrate your income, which may include pay stubs or W-2 forms whether you are a worker or if you are filing tax returns, bank statements, or profit-and-loss statements if you are self-employed. If you rely on supplementary sources of income to help pay your mortgage, they must also be documented.
You Can Still Refinance Later On
If you need a mortgage modification now, you may still be able to refinance later on. Refinancing can help you reduce the length of your loan, or help you secure a lower interest rate. However, refinancing depends on your income history and credit score. It’s good to keep in mind that if your financial situation improves in the future, you aren’t locked into the modified mortgage.
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Pros Of A Loan Modification
If your situation qualifies you, a loan modification can:
- Stop an in-progress foreclosure
- Prevent foreclosure before the process begins
- Lower your monthly payments
- Help you catch up on late payments
- Stop you from falling behind on payments
- Resolve delinquency status
- Cause less damage to your credit than foreclosure
Keep Your Credit Rating Up
Check into your credit rating it will be a factor in whether you get approved or not. Order copies of your credit report from all three major credit agencies, Experian, Equifax and TransUnion youre entitled to one free copy a year from each and review them for errors or omissions that might be hurting your credit.
Also, do what you can to improve your credit rating or, at least prevent it from declining. Pay down major credit card debt, if possible otherwise, avoid piling up debt if finances are tight. Pay all bills on time, including utility payments but particularly installment debt like your auto loans and credit cards. If youre in a pinch, be aware that creditors generally wont report you as late unless you miss a payment by a least 30 days but try not to get in the habit of juggling delayed payments.
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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.
