A mortgage loan modification is a change to the terms of your mortgage, which could make it more affordable. However, this could affect your credit and interest rate.
It’s not uncommon for people to fall behind on their mortgage payments. You may even think about giving up, but it’s not the end of the world. Depending on your situation, you may be eligible for a loan modification that can make it easier to keep up with your payments and retain your home.
If you are experiencing a similar situation, here is the information you need to know regarding a mortgage loan modification.
What is a Mortgage Loan Modification?
You may not be fully aware of the differences between refinancing your mortgage and a loan modification, but they are very different. Refinancing entails replacing your mortgage loan with a new one, but a mortgage loan modification is changing the terms of your existing mortgage loan.
How Does a Mortgage Loan Modification Work?
Getting a mortgage loan modification can lower your monthly payments, extend the term of your mortgage, or help you to go from an adjustable-rate loan to a fixed loan. The type of modification depends on the lender, but in general it means lower monthly payments. Foreclosure is costly for lenders. Because of this, many lenders are willing to grant loan modifications because that’s cheaper than the alternative.
What are the Qualifications for a Mortgage Loan Modification?
If you’re not delinquent yet, but there’s a high chance you will be, you may qualify for a mortgage loan modification. To qualify for a mortgage loan modification, homeowners need to be either delinquent or in imminent default.
A few reasons mortgage holders might face imminent default and may not be able to make mortgage loan payments on time include loss of job, loss of spouse, disability, or illness.
What Types of Mortgage Loan Modification Programs are There?
Lender Programs
Often, lenders offer loan modification programs of their own that can make changes to the terms of your mortgage loan that are permanent or temporary. If a lender doesn’t have a program, ask if you can qualify for any programs that can help you modify or even refinance your mortgage.
Flex Modification Program
The Flex Modification program is a foreclosure prevention program from Fannie Mae and Freddie Mac. This program went into effect in October 2017. If your home mortgage is guaranteed or owned by these government-backed mortgage giants, there is a chance you will be eligible for the Flex Modification program.
How Do I Get a Mortgage Loan Modification?
When you are struggling to make your mortgage payments on time, it is important to call your lender or servicer immediately to discuss your available options. Talking to your lender when you already defaulted usually makes matters worse. The mortgage loan modification process is not the same for every lender. Some lenders require you to prove that you have a hardship that keeps you from being able to make your current mortgage payments on time.
If you’ve been denied a mortgage modification, file an appeal with your mortgage servicer. Get help from a HUD-approved housing counselor to learn about appealing the decision and understanding your options.
What Do I Need to Know Before Modifying My Mortgage Loan?
If you have to modify your loan, beware of the possible downside: your credit report may be negatively affected. But keep in mind that a loan modification won’t be as damaging as a foreclosure. It may affect your ability to re-qualify for a loan for a time, but it won’t last forever.
When you modify your mortgage, whether it be temporary or permanent, lenders may want to see that you can still afford to pay back your loan. If your modification is only temporary, you will need to pay back the amount that was deferred before you are able to qualify for a new purchase or refinance. However, after permanent modifications, lenders may want to see 12 or 24 on-time payments before they will consider giving you another mortgage.
A mortgage modification can be a great help to homeowners in need. However, it is possible that the modified loan will take longer to pay off and could cost you more in interest. You may feel this trade-off is worth it when you consider how a modification could save your home.
