Qualifying For FHA Home Loans After Loan Modification

This BLOG On Qualifying For FHA Home Loans After Loan Modification Was UPDATED On January 25th, 2019

Homeowners who had a loan modification in the past often get conflicting answers when they consult with a loan officer about qualifying for FHA Loans After Loan Modification.

  • To get an approve/eligible per Automated Underwriting System, mortgage applicants need 12 months timely payments on their monthly payments that report on their credit report
  • One 30 day mortgage late payments are allowed to get an approve/eligible per AUS
  • However, most lenders that grant borrowers loan modifications often have homeowners skip multiple mortgage payments in order for loan modifications to go through
  • This is the reason why under HUD Guidelines, a 12 month waiting period after loan modification is required to qualify for FHA Loans
  • However, many banks and mortgage lenders treat loan modifications the same as foreclosures
  • Often times, these lenders will require a three year waiting period after modification
  • This is not the case and not under HUD Guidelines
  • This requirement is a lender overlay imposed by a particular lender

Gustan Cho Associates is a national lender with no mortgage overlays on government and conventional loans.

What Is A Mortgage Loan Modification?

A loan modification is when homeowners are behind on mortgage payments where it is next to impossible to catch up and/or can no longer afford current mortgage payments because of a reduction in income.
  • A loan modification is different than a repayment workout plan where a borrower can make a payment agreement with the mortgage payments that they are currently behind
  • A loan modification is the restructuring of mortgage loan
  • The arrears are added back to the loan
  • The terms and rates of mortgage loan are restructured where monthly payments are affordable 

Lenders are more apt to do a loan modification for their borrowers if the borrowers qualify instead of going through foreclosure proceedings.

Loan Modification Companies

Borrowers can hire a third party loan modification company to act as a broker or they can deal directly with the mortgage lender.

  • Loan modification companies cannot charge any upfront fees and/or costs
  • Homeowners  should do extensive due diligence on the loan modification company they intend to hire and check out their references
  • There are many scammer loan modification companies which give the reputable ones a bad name
  • A reputable loan modification company can often reduce the time required to do a loan modification and make sure paperwork is in order to present it to the lender

Whatever a loan modification company does, homeowners can do it themselves.

Doing The Loan Modification Yourself

Homeowners planning on doing the loan modification themselves need to make sure to gather all the credit and financial information about them and their co-borrower if they have one.

  • Lenders will request the following documents
    • 2 year of income tax returns
    • Two years W-2s
    • Letter of explanations
    • Recent paycheck stubs
    • Personal financial statement
    • Two months of bank statements
  • The key here is that the mortgage lender wants to make sure borrower is able to afford mortgage payments now and in the future
  • Borrowers who had an income reduction, the lender might increase the terms of mortgage loan
  • This reduces the mortgage rates to make new mortgage payment affordable after the loan modification
  • Loan modifications do take time

Expect anywhere between 3 to 6 months before a loan modification is finalized.

Document Phone Calls And Letters During Loan Modification

Every time you speak with the mortgage lender, make sure you take notes as of who you spoke with, the time and date, and what you guys have discussed.
  • Ask for the representative’s name and phone number, extension, and employee number
  • If the lender asks you to provide documents, make sure you get it to them as soon as possible

If you delay the documents requested by the lender, the file can be transferred to the foreclosure department and that is what you are trying to avoid.

Getting Denied For Loan Modification

If the lender denies a request for a loan modification, there are other options.

  • Homeowners who are not behind on mortgage payments may consider refinancing
  • Borrowers with FHA loans behind with their payment to other creditors but are current with a mortgage loan will qualify for an FHA streamline refinance mortgage loan
  • I can offer an FHA streamline refinance mortgage loan that does not require income verification, no credit scores, and no appraisal
  • Credit scores do not matter whether recently late on all bills
  • However, housing payment needs to be on time
  • One 30-day late payment is allowed in the past 12 months on a current mortgage loan

FHA streamline refinance loans can greatly reduce mortgage payment if the borrower chooses a 5-year adjustable-rate mortgage FHA Loan.

Check To See What Property Is Worth

Another option to avoid foreclosure is to consult with a realtor and see what the home is worth.

  • Homeowners might realize that home is worth more than they think it is worth
  • If that is the case owners can list home and hopefully it will sell fast

Bankruptcy may be another option.

  • If owners are already in the foreclosure process and the sheriff’s sale has been already set, a bankruptcy will halt all collection activities and the sheriff’s sale
  • Homeowners can still keep their home through bankruptcy

Owners should consult with a bankruptcy attorney concerning your options.

Deed In Lieu Of Foreclosure Or Short Sale

Another alternative to foreclosure that you might explore is giving the deed to the home in lieu of foreclosure and avoid a deficiency judgment.

  • A deed in lieu of foreclosure is when homeowners give up the rights and title to the home and the mortgage lender agrees that they will stop foreclosure proceedings and will not come after them for the deficiency
  • A short sale is another option homeowners owe more on a mortgage than the value of the home
  • With a short sale, the mortgage lender will give owner permission to sell the home for less than what they owe the mortgage lender

Short sales are very common after the real estate and credit collapse of 2008 where home values have plummeted throughout the country.

Waiting Period After Housing Event To Qualify For FHA Loans

There is a one-year waiting period to qualify for FHA Loans after a mortgage loan modification.

  • There is a three-year waiting period to qualify for FHA Home Loans after foreclosure, deed in lieu of foreclosure, short sale
  • The waiting period is two years after Chapter 7 Bankruptcy discharged date
  • There is no waiting period to qualify for FHA Loans during and after Chapter 13 Bankruptcy
  • However, borrowers need to wait 12 months if they are trying to qualify for FHA Loans During Chapter 13 Bankruptcy
  • There is no waiting period to qualify for FHA Loans after foreclosure, deed in lieu of foreclosure, short sale with our NON-QM Loans

Home Buyers or homeowners who need to qualify for a mortgage with a direct lender with no overlays can contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.

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