How Do I Get A Modification on My Home Loan?

Applying for a modification is the easy part but getting approved for one is a completely different thing. What is a modification?

Modifications change the terms of your existing mortgage, unlike a refinance, which is a completely new loan. Modifications are not new loans; you keep the same loan, but the terms are changed. These terms usually include, lower rates, extending the term, and sometimes putting arrears into a non-interest balloon. Typically, most mortgage lenders look for two missed mortgage payments before they will consider approving a modification. Federally backed Fannie Mae and Freddie Mac have the Flex-Modification program.

This mod will help delinquent homeowners become current. They usually lower the interest rate and will extend up to a 40-year term to help lower the monthly payment. Remember you can only lower the principal and interest part of the payment, not the escrow. The escrow is your real estate taxes and homeowner’s insurance. Those amounts are fixed and cannot be modified.

FHA loans fall under the HAMP program still. Here they can take up to 30% of your arrears and place it in a partial claim. This is also non-interest-bearing, but instead of a balloon, they file a 2 nd mortgage on the property. This does not have to be paid until you sell the home or refinance the existing loan.

The hardest lenders to approve modification are the private investor loans. These loans do not fall under a federal program. Every investor has their own set guidelines, but usually they follow along the same ideas. Some investors may not lower rates, or some may agree to lower the interest rate but will not extend term. Every investor is different.

The most important thing to remember when applying for a modification is that you need to list every bit of income that you have. Many people believe if I show less income, my payment will be less. This is not true. Banks need to feel comfortable that if they agree to lower your payment and make changes on your loan, you will financially be able to pay them. Always remember more income is always better.

After you fill out the package and send all the proof of income to the bank, stay in touch with the lender. At least once every 7 days call the customer service reps for an update. Many times, the lender will decide they need additional papers. It is your responsibility to send that in a timely fashion. The lender will only give you a specific amount of days to return requested information.

Once the lender approves the modification, you will receive three trial payments. Those payments MUST be paid on time. If you pay the trial you will be given a final package that will be recorded in the county clerk office. This will officially change the terms of your mortgage and you can rest easy knowing that you are now current with your mortgage.

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