What Is Loan Modification?

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

You can hire a third party loan modification company to act as your broker or you can deal directly with the mortgage lender yourself.  Loan modification companies cannot charge you upfront and you should do extensive due diligence on the loan modification you 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 your paperwork is in order to present it to the mortgage lender.  Whatever a loan modification company does, you can do it yourself.

Doing The Loan Modification Yourself

If you are planning on doing the loan modification yourself, you need to make sure that you gather all the credit and financial information about yourself and your co-borrower, if you have one.  The mortgage lender will want two years of your income tax returns, two years W-2s, letter of explanations, recent paycheck stubs, personal financial statement, and two months bank statements.  The key here is that the mortgage lender wants to make sure you are able to afford your mortgage payments now and in the future.  If you had an income reduction, your mortgage lender might increase the terms of your mortgage loan and reduce the mortgage rates to make your 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

Everytime 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 mortgage 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 mortgage lender, your file can be transfer to the foreclosure department and that is what you are trying to avoid.

If You Get Denied For A Loan Modification

If your mortgage lender denies your request for a loan modification, there are other options.  If you are not behind on your mortgage payments, you may consider refinancing.  If you have a FHA insured mortgage loan and you are behind your payment to other creditors but are current with your mortgage loan, you will qualify for a FHA streamline refinance mortgage loan.  I can offer a FHA streamline refinance mortgage loan that does not require income verification, no credit scores, and no appraisal.  Your credit scores does not matter whether you were recently late on all your bills except your housing payment needs to be on time.  One 30 day late payment is allowed in the past 12 months on your current mortgage loan.  FHA streamline refinance loans can greatly reduce your mortgage payment if you choose a 5 year adjustable rate mortgage FHA insured mortgage loan.

Check To See What Your Property Is Worth

Another option to avoid foreclosure is to consult with a realtor and see what your home is worth.  You might realize that your home is worth more than you think it is worth and if that is the case, you can list your home and hopefully it will sell faster than you think.

Bankruptcy may be another option.  If you 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.  You can still keep your home through bankruptcy.  You 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 your home in lieu of foreclosure and avoid a deficiency judgment.  A deed in lieu of foreclosure is when you give up the rights and title to your home and the mortgage lender agrees that they will stop foreclosure proceedings and will not come after you for the deficiency.

A short sale is another option if you owe more on your mortgage than the value of your home.  With a short sale, the mortgage lender will give you permission to sell your home for less than what you owe the mortgage lender.  Short sales are very common after the real estate and credit collapse of 2008 where home values have plummetted throughout the country.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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