Many banks offer loan modifications for mortgages in an attempt to help homeowners continue to be able to afford their property. If you are having trouble making payments, you should look into programs that change the terms of your mortgage, making your house a little more affordable. Fortunately, there are plenty of programs available, and lots of lenders offering them. It is a good idea to consider the details of loan modifications before making any decisions regarding them.
When Should You Consider Loan Modifications?
Not everyone needs a loan modification, and in fact, not everyone is able to get one. However, if you are having trouble making payments on your house, this may be a good option for you. Whether you are just a little behind on payment or are facing foreclosure, a loan modification could be your saving grace. In addition, if you currently have an adjustable-rate mortgage (ARM) that will soon reset to a higher interest rate, you can likely get a loan modification to switch it to a conventional mortgage instead.
If you are facing sudden financial difficulties due to a recent change in your life, such as divorce or development of a severe illness, you should let your bank know so you can find out what you are eligible for. Some lenders are happy to help homeowners avoid foreclosure due to sudden life changes. After all, they make more money if you keep paying on the loan than they would during foreclosure.
What Can a Modification Do for You?
The types of modifications vary. One of the most popular kinds reduces the interest rate, which in turn lowers the monthly payment and the overall amount you will pay on the house. If you have been late on the mortgage payment several times and are thus facing fees, a loan modification can usually get rid of them. Additionally, some programs even reduce the principal amount you owe, which is especially attractive to homebuyers who owe more than the home is worth. The lender you choose can help you decide the best type of loan modification for your situation.
What Does a Modification Require?
If you wish to change your loan, the lender will need a lot of information from you. Expect to turn in an application for the loan modification, and provide any proof that is necessary to show that you are telling the truth. For example, if you have told the lender you cannot make payments due to sudden illness, you should provide proof of medical bills. If your financial hardship involves a divorce, you may need to show legal documents.
You will also need to show that you can afford the new loan payment. Lenders do not want to work with homeowners to change the mortgage, only to find they still cannot pay. You might need to provide paystubs and budgets to show that you can pay on time once the loan has been modified in your favor.
In addition, you will have to meet the minimum requirements for the loan modification. For instance, you might need to have a payment history that is free of late payments on the loan, or a minimum credit score. Your house may require an appraisal, and many times you need to show that you have enough income to pay your bills so you do not end up defaulting on the loan. When a lender spends time on loan modifications, it needs to know that you are a good investment, which is why you will have to meet certain requirements before you qualify.
Which Lender Should You Choose?
You can go to the lender that currently holds your mortgage first since the process may be simple this way. However, if your lender is not helpful or does not have good terms for loan modifications, you can check out other banks instead. Look for a lender that is eager to answer your questions and offers some loan changes that will clearly benefit you. In addition, check out the costs of changing your loan, since these can add up and make it ultimately not worth the modification if you have to pay nearly the same amount you will save in the long run.
Before you choose a lender based on appealing terms, you should find out the reputation of the bank. If you find that no one has ever heard of it, or you see only bad reviews online, you should choose a different lender that you can count on to stick to its word. Otherwise, you may end up agreeing to pay the fees associated with loan modifications, only to never see the benefits you were promised.