Facts About Loan Modifications
Although it might be possible to save your home by obtaining a loan modification, it's only suitable for a few.
CAUTION: Obtaining a loan mod could HURT struggling homeowners more than help. Find out more by reading below.
The Truth About Loan Modifications
What is a Loan Modification?
Basically, obtaining a loan modification is very similar to refinancing. Homeowner's facing foreclosure work with their current lender to refinance their home. This usually involves adding the total amount of missed payments, interest plus penalties, and tacking it on to the backend of the loan. Once complete, the homeowner's loan is current and of course, he or she is no longer facing foreclosure.
Government Assistance Programs Expired
Nowadays, lenders are much less motivated to help homeowners with loan mods, mostly because government assistance programs such as HAMP, are no longer available.
Behind in Payments Due to a TEMPORARY Loss of Income
Loan modifications are only intended for those borrowers who are behind in their mortgage payments due to a TEMPORARY loss of income. You MUST prove the problem is solved and you have an acceptable income level in order for the lender to agree to work with you.
Seriously Consider Your long Term Financial Future
Yes, we know this is much easier said than done, but when facing any financial crisis we must do our best to treat it like a business. Sometimes it just makes no financial sense to put ourselves even further in debt with a loan modification while trying to save our homes. Consider, even if the worse is to happen, eventually YOU WILL RECOVER and it's very possible the best decision for your financial future is to short sale your house and walk away. Yes, make as graceful of exit as possible, but do so with your head held high and know a brighter future is in store.
Be Very Cautious
If you have received a NOD but are also working on trying to get a loan mod, be very watchful of your timeframe. Loan modifications take time! Lenders often drag their feet. If your plan is to try for the loan mod and if unsuccessful, try for a short sale, WATCH your TIMELINE! It also takes time to do a short sale transaction and usually there is NOT ENOUGH TIME FOR BOTH. The best course of action is to make a decision on either a loan mod OR a short sale and take action. In California, the foreclosure process typically takes a minimu, of 120 days.
Qucik Facts About Loan Modifications
Back when the economy failed, many homeowners obtained loan mods. 67% ended up defaulting in the first year, losing their homes to foreclosure.
Loan Mods only Delay Foreclosure
Knowing a loan default was likely, lenders were eager to squeeze homeowners every dime possible before eventually foreclosing.
Successful Loan Mods
YES, loan mods can work, but ONLY IF you have truly recovered and now earning income that is equal to, or greater than before falling you started falling behind in your mortgage payments.
Your Future Wealth
Always determine the true cost of a loan modification vs what you owe on your home AND your home's value. Remember, a loan mod is going to cost you even more, so make sure it's worth it.
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Options to Avoid Foreclosure
Arrange a temporary repayment plan with your lender. This might work, if you really have recovered from your financial difficulties.
If you can qualify, obtain a new loan with lower monthly payments. Usually NOT a viable option.
Rent the Property
You may be able to rent the property but you must bring the loan current first.
Deed in Lieu
A "friendly foreclosure" and not recommended. It's kind of like pleading guilty for a crime without having a lawyer.
Filing for Bankruptcy will stall foreclosure but NOT prevent it. Obviously, you'll need an attorney before doing anything.