Home Loan After Mortgage Modification Guidelines For Borrowers

This ARTICLE On Home Loan After Mortgage Modification Guidelines For Borrowers Was PUBLISHED On October 31st, 2019

Home Loan After Mortgage Modification Guidelines And Requirements For Mortgage Borrowers:

Mortgage modifications are a failsafe put in place to help clients avoid foreclosure
This is a formal agreement between you and your current mortgage servicer changing the terms of your mortgage
Typically, these terms go into your favor, lowering your monthly payment, or lowering your principal balance
In this blog we will detail some common mortgage modifications, waiting periods after loan modifications, and how to apply for a mortgage after your loan has been modified

In this article, we will discuss and cover Home Loan After Mortgage Modification Guidelines For Borrowers.

What Is A Loan Modification

A loan modification can mean many different things.

In fact, almost every loan modification is different and unique based on the borrower’s financial struggles
A loan modification is a recorded change made to the terms of an existing loan
As mentioned above it could be an extension of the length of repayment, a principal reduction, a reduction in the interest rate for a specified time period, deferred payments, or any combination of the above
Each loan modification is negotiated between you and your current lender

These changes will only go into effect after you contact your lender and let them know you are falling behind or have already fallen behind on your mortgage payments.

Home Loan After Mortgage Modification Guidelines And Terms

You can no longer make the payments under the original mortgage terms.

The loan modification process can take time
After you contact your lender, there is no guarantee they will approve the modification
Many times, it is in the lenders favor to offer you this modification
You may be upside down on your mortgage
Meaning you owe more than the house is worth. In that case, the bank will want you to continue to make payments
Otherwise, they will lose out on more money

However, the opposite can also be true, if you have a large amount of equity, they may be less willing to give you a loan modification.

Typical Loan Modifications Structured By Lenders

Common Loan Modifications:

Principal Reduction:

Simply means the current servicer will forgive a portion of the principal balance owed
Depending on your modification, this can be a substantial amount
The largest I have seen is a $100,000 principal reduction

Extended Loan Term:

Basic math shows us a longer-term means a lower monthly payment
In certain cases, we have seen loan modification extend the mortgage terms all the way out to 40 years
Or if you have been paying on your loan for a number of years thus far, your loan modification may extend your mortgage back to a 30-year mortgage term

This is designed to lower your monthly payment and allow you to maintain making mortgage payments.

Interest Rate Reduction:

Many loan modifications also provide a lower interest rate
In some cases, they may turn an adjustable-rate mortgage into a lower fixed-rate mortgage to help you stay on track
In other cases, they will tear your interest rate
They may start your modification at 2% interest for the first two years, then raise it each year until the interest is paid back in full
This is designed to lower your payments and slowly bring as you recover from your financial crisis
At the end of the day, the bank does you a favor lowering your payment, and you still pay back all the interest owed

This type of interest rate reduction is very common.

Customed Tailored Loan Modification By Lenders

Keep in mind that every mortgage modification is slightly different and may involve a combination of the items above.

Settlement companies work on a borrower’s but have to negotiate modification terms
These companies are a for-profit business
Please keep that in mind they may also utilize a mortgage modification lawyer to help stay out of default and enter into a loan modification

Depending on the type of mortgage you currently have, there may be government programs to help you with your loan modification.

Types Of Home Loan After Mortgage Modification Guidelines And Programs

Below are the various loan modification programs:

FANNIE MAE has a program called FLEX MODIFICATION
FHA has a program called FHA-HAMP (Home Affordable Modification Program
U.S. Department of Veterans Affairs offers MORTGAGE COUNSELING but seems to only have modification programs for Disaster Relief
They offer some good advice for struggling Veterans, please see the VA DELINQUENCY ASSISTANCE GUIDE

Now that we understand what a mortgage modification means, let’s discuss waiting periods after you successfully enter into a loan modification. We want to reiterate the fact that no two loan modifications are the same, this is general information in this blog. Your specific loan modification may have longer waiting periods depending on the terms negotiated.

Home Loan After Mortgage Modification Guidelines On Waiting Period Requirements

The waiting periods below are for loan modifications in general:

Most of the time, you need to wait 12 months before entering into a new mortgage
During this 12-month period, all modified mortgage payments and all other debts must be paid as agreed
There cannot be late payment popping up after your mortgage has been modified
Similar to qualifying after filing a CHAPTER 13 BANKRUPTCY
Assuming all of your payments are on time after the loan modification, after a 12-month waiting period you are then eligible to purchase a new property

Of course, you must meet all other agency guidelines to qualify for the mortgage.

Home Loan After Mortgage Modification Guidelines On Refinances

Refinancing out of the modified loan

Most of the time, refinancing your modified loan has a waiting period of 24 months
Some modifications are longer
As mentioned above, each loan modification is different
The bank who modifies your loan is trying to assist you

They also need to recoup some of their costs, that is why the waiting period is longer when refinancing.

Understanding Terms Of Modification

It is important to understand the terms of your loan modification.

There have been countless times where we have clients who do not know they have a principal amount you after their current mortgage pay off
Each loan modification has different terms

We cannot reiterate that fact enough. Before entering a loan modification, you may want to consult an attorney.

Home Loan After Mortgage Modification Guidelines Versus Lender Overlays

Many lenders have additional LENDER OVERLAYS surrounding loan modifications. The good news is, at Gustan Cho Associates we do not have any lender overlays. We will go off the bare minimum waiting periods for mortgage modifications. We do not offer loan modifications door have advice on entering a loan modification. We are only here to help you after a year or longer after a modification. Please feel free to call Mike Gracz on 630-659-7644 or text us for a faster response. Or send an email to mgracz@gustancho.com with questions. Our highly-skilled mortgage team is here to assist you 7 days a week including holidays. We look forward to hearing from you.