Recently, there has been a lot of news about loan modifications going around in newspapers, on television, and online. Are you a good candidate for such a thing? Can it help you or someone you know to improve your financial situation or avoid foreclosure? Learn the basics and discover whether or not the changing tides in the mortgage industry and lending rules can benefit you and your family.
What is Loan Modification?
Any change that is made to a mortgage once it has been signed by the borrower and the lender is technically considered to be a modification. Currently, though, this term is being applied to changes that are made with the intention of preventing the borrower from entering into foreclosure status and/or losing his or her residence. Sometimes, this will be done voluntarily by the lender since mortgage companies very much understand that changing the terms so as to be paid on time even if at a lower rate or through smaller payments is a significant improvement over the amount that could be made on the sale of a property at auction or as a foreclosure.
In other situations, the lender will be inspired to work with borrowers to modify a home loan through state or federal government incentives. Furthermore, with the current state of the economy and the new laws that have been passed to assist American homeowners, some banks and mortgage companies are required to do modifications in situations that meet certain criteria.
Who Qualifies?
Chances are, if you are behind in your payments or being threatened with foreclosure, you will qualify for changes to the terms of your loan. You may also qualify if you are facing bankruptcy, which is especially useful because a bankruptcy on record can seriously damage your credit and make it next to impossible to secure a new mortgage or even lease a house, townhouse, or apartment for many years. What may come as a surprise, though, is that there are even situations in which a borrower is current in his or her payments and yet still is able to get a loan modified to make things more affordable. If you have had a recent change in employment, a pay cut, the loss of family income, or any other financial hardship, or if you can prove that you are barely able to make your payments due to other debts, it is worth evaluating the potential for a change in terms.
What Changes Can Be Made?
A loan modification allows lenders to make several different types of alterations to a mortgage to make it more affordable for the homeowner. The most common change is one to the interest rate. It can be decreased, in some cases. In others, it can go from floating or adjustable to fixed. The third rate option is that conditions used to calculate an adjustable rate can be altered.
The length of the mortgage can also be modified in order to make it easier for the borrower to afford. So can the total principal; the lender can decide to declare that you owe less than you originally did. Late fees can also be eliminated, as can other surcharges or penalties. Finally, monthly payments can be tied into the household income, reducing them to an acceptable percentage so that the family can maintain a certain standard of living and keep up with other expenses.
If you are not sure whether or not you qualify to have your loan modified, you can easily get more information from AdvantageHomeRates.com.
