Do You Qualify?
Who qualifies for a loan modification? You do!
Bottom line, a loan modification is simply an agreement between you and your lender to change the terms of your original loan. This could be a modification or change in the interest rate, the length of the loan, a reduction of the total principal owed or any combination of these items.
Lenders agree to loan modifications for one basic reason; it’s cheaper for your lender to do a loan modification than to foreclose on your home. Additionally, it’s cheaper for the lender to agree to modify the terms of your loan than to agree to a short sale; a sale in which you sell your home for less than you owe on the existing mortgage(s).
Lenders everywhere are staffing up for the deluge of loan modifications coming their way like a tsunami. With the current economic situation we’re in and tremendous pressure put upon them by the United States federal government mortgage lenders today will consider ANY serious request to modify the terms of an existing mortgage.
It’s estimated more than 3 million home loans need to be modified and only about 50,000 have been completed so far. Lenders will agree to virtually any loan modification in an effort to keep you in your home. The modified loan rates can be very attractive for you and result in significant reductions in monthly payments, interest rates, principal reductions and more.
The fact is more people qualify for a home loan modification than you might think. In essence, any homeowner experiencing difficulty paying their mortgage is a serious candidate for a loan modification.
Qualifying for a Loan Modification is MUCH easier than getting a new loan. There is no credit checks, no FICO scores, no property appraisal, no down payment, no realtor commissions to pay, no mortgage broker expenses, no zip; you already have the loan!
One issue that seems to trip up a lot of homeowners contemplating a loan modification is the fact you do not have to be late on your mortgage to qualify for a loan modification (LM).
Great candidates for loan modifications are homeowners with adjustable rate mortgages or high interest rates or homeowners who are upside down…in other words, they owe more on their home than their home is worth. Homeowners with negative amortizing loans (your principal goes up every month) and loans that will adjust up succeed in achieving a loan modification very often. Homeowners with any kind of hardships are also ideal candidates. This includes homeowners experiencing reduced hours at work, job loss, divorce and illness.
When assessing whether or not a hardship exists, look for something that has changed that has caused income to go down or expenses to go up such that you no longer have the income to make your current or soon-to-be current mortgage payment.
The more difficulties or hardships you’re experiencing the greater negotiating power you have with your lender. Lenders DO NOT WANT TO FORECLOSE ON ANY MORE HOMES! Lenders would much rather make a deal to let you remain in your home thereby creating a “win-win” situation for both you and the lender than to go through the costs and expense of foreclosing on your home or getting involved in a lengthly short sale.
Additionally, you must want to remain in your house. You must have little or no equity ( less than 20%) or be upside down (Again, owe more on your house than it’s worth).
Loan modifications are based on your ability to pay. You cannot make too much money or too little ( 32% - 38% of income). Again, credit history is really not an issue. You could have good credit or poor credit. Properties in distressed areas are getting preferred treatment. Some lenders will consider investment properties and some will not.
You must be able to provide documentation showing that you can afford to make the proposed modified payment. Since this is NOT a refinance, but rather a re-negotiation between you (or your representative) and the lender, there are no published guidelines. All income can be considered as long as it can be documented. Any realistic loan modification proposal will generally be accepted. Remember, the lender does NOT want to take back the home.
How long does a loan modification take? Generally 30-45 days to complete a “soft” loan modification and 45-90 days for a “hard” modification. A “soft” loan modification is someone having late mortgage payments, an income hardship, someone “upside down” with their mortgage, etc. A “hard” loan modification is someone who already has a notice of default (NOD) or someone not behind with their mortgage payments.
The loan modification process is not easy but the rewards more than justify the effort. It takes focus, preparation, organization, and knowledge to achieve a satisfactory loan modification. But when you succeed you’ll receive a great loan at a very competitive rate that is fixed and secure for 30 years.
Ultimately, whether you think you qualify or not, you should try. Millions of homeowners will succeed in getting loan modifications over the next several years. You could be one of them!
Finally, remember! You CAN do this on your own. You can also hire help. In either case, get educated BEFORE you go down the path of loan modifications. Knowledge of the process, the tactics, the strategies, the document package preparation, and the marketplace are critical to saving yourself tens of thousands of dollars over the lifetime of your loan and allowing you to remain in your home!
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