Qualifying For FHA Mortgage After Loan Modification

This BLOG On What Are The Qualification Requirements For FHA Mortgage After Loan Modification Was PUBLISHED On July 14th, 2020

The real estate market crash of 2008 created major impacts on homeowners who had teaser rate mortgage loans.

  • Teaser rates are where they initially had very low rates
  • Once their adjustment periods were over, the new housing payment doubled and sometimes tripled where homeowners could no longer offer their new adjusted mortgage payments

In this article, we will discuss and cover Qualifying For FHA Mortgage After Loan Modification.

Buying A Home After A Loan Modification

How to qualify for FHA mortgage modification after loan modification

Homebuyers can now qualify for FHA Mortgage After Loan Modification in 12 months after the modification:

  • These mortgage loans were often called negative amortization mortgage loans
  • Bankruptcies and foreclosures have skyrocketed at all-time historical levels
  • Besides bankruptcies, deed in lieu of foreclosures and short sales hit historical record rates
  • Starting in 2009, modifications became extremely popular

Loan modifications are where homeowners who had upside-down mortgages or mortgage loan payments.

Reasons Why Homeowners Require Loan Modifications

Homeowners could no longer afford due to their home mortgages due to the following:

  • job loss
  • business loss
  • underemployment

Homeowners still wanted to keep their home but could not afford their current mortgage loan payments.

  • Homeowners contacted their mortgage loan servicers and requested a mortgage modification. 
  • A loan modification is where the lender restructures the current mortgage loan
  • Lenders reduce the mortgage payment by offering a lower housing payment
  • This is done by lowering the interest rate and/or discounting the balance of the mortgage loan to avoid foreclosure
  • It can take months to process to finalize a modification
  • The current lender needs to review and audit homeowners financials
  • The lender needs to feel confident homeowner is able to afford the new modified mortgage loan payment.  
  • Hundreds of thousands of homeowners went through a workout of their original mortgages

Many homeowners who went through restructuring the home loans are now stable.

When Can Homeowners Get A New Mortgage After A Loan Modification

Many have made timely payments and are thinking of buying a new home and/or refinancing their current mortgages:

  • Like bankruptcy and foreclosure, there is a waiting period after loan modification per HUD mortgage lending guidelines. 
  • However, just because homeowners have passed the waiting period does not mean they will qualify for a new mortgage after the waiting period
  • I have gotten dozens of calls from potential home buyers who had a prior modification
  • Went to a mortgage lender and were told that there is a 4-year waiting period to qualify for a new mortgage
  • Each lender have investor overlays when it comes to a waiting period after a loan modification

Borrowers looking for a direct lender with no investor overlays after a modification, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at [email protected]

How Are Modifications Done?

When Can Homeowners Get A New Mortgage After A Loan Modification

A mortgage loan is modified when the lender restructures the terms and conditions of the current mortgage loan without refinancing the current mortgage loan.

  • The loan is restructured and modified by the current mortgage company who is servicing a mortgage loan
  • No appraisal is required unless home is severely underwater
  • Underwater Mortgages means loan balance is higher than the value of the home

To determine whether or not the lender will discount the balance of the current mortgage loan, the lender needs to see the financials of borrowers to make sure what they are able to afford.

How Do Lenders Modify Mortgage Loans

A loan is modified by one of several methods:

  • When the current lender reduces the current mortgage rate to a lower rate to decrease the monthly payment
  • By extending the term of the current loan to a longer-term so monthly payments are reduced by converting to a fixed-rate mortgage at a lower rate

Or by discounting the overall balance of the loan so the balance is lowered which reduces the monthly mortgage payment.

Qualifying For FHA Mortgage

If the current home loan was modified via getting a lower interest rate or if the current mortgage was switched to a fixed-rate mortgage from an adjustable-rate mortgage ( ARM ), there is no waiting period after a loan modification.

  • However, if the current lender has discounted current loan balance, the mandatory waiting period after a loan modification is 12 months from the effective date of the loan modification
  • Need 12 months on-time payment history which is reflected in the credit report and verification of mortgage
  • If the current lender has extended the term of the loan to reduce new mortgage payment, there is a mandatory one-year waiting period and 12 months of on-time mortgage payments that are reflected on the credit bureaus

Most homeowners who just had an interest rate reduction with no reduction of their loan balance or extension of the term of the current loan will not have a waiting period after the mortgage has been modified.

FHA Mortgage After Loan Modification: Purpose For Modifying Mortgage

How to qualify for an FHA mortgage

Mortgage lenders offer to modify existing mortgage to avoid foreclosure and work with homeowners who wanted to still keep their home. 

Candidates are homeowners who have been victims of the 2008 real estate and credit meltdown:

  • Others are those who lost their jobs
  • Those who lost their business
  • Homeowners who went through a divorce
  • Homeowners who had medical issues
  • Homeowners with high payment shock who had negative amortization mortgage loans
  • Homeowners with sub-prime mortgage loans
  • Borrowers with prior teaser interest rate mortgage loans
  • Those who had extenuating circumstances

General Requirements For FHA Mortgage After Loan Modification

As mentioned earlier, we are direct lenders with no mortgage lender overlays with government and conventional loans. We offer mortgage loan approvals after a mortgage loan modifications.  Generally, we need twelve months of timely payments after a loan modification and no late payments after the date existing mortgage has been modified.  If told by a bank, credit union, or other mortgage companies you do not qualify for at least three or more years after a mortgage modification, that is because they have overlays which are additional guidelines above and beyond the minimum HUD lending guidelines.  Borrowers with a prior loan modification and need a direct lender with no overlays, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at [email protected]

This BLOG On FHA Mortgage After Loan Modification Was UPDATED On July 14th, 2020

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