The loan modification process can be overwhelming and confusing for many distressed homeowners. Programs and guidelines are changing and it is getting much easier for homeowners to get the help they need.
To help you understand how the process works and what you can expect, here are the Top Frequently Asked Questions and their Answers:
1. What exactly is a loan modification?
A loan modification is a permanent change in one or more terms of a borrower’s home loan, allows the loan to be reinstated, and results in a payment the homeowner can afford..
2. Can the lender include late charges in the Loan Modification?
The federal plan mandates that the bank waive any administrative charges, late fees and penalties when offering a loan workout.
3. How will the new government programs help me get a loan modification?
The Federal government has allocated $75 billion dollars to subsidize lenders and servicers who offer a loan workout to their clients. Now, the banks will have a monetary incentive to offer help to qualified borrowers. In addition, homeowners who pay their new modified payments on time will be eligible up to $5000 credit to their loan balance.
4. How do I know if I will qualify for a loan modification?
The number 1 criteria your lender is looking at is your ability to make the new modified payment now and in the future. You need to supply the lender with proof of your income, along with a complete and accurate financial statement detailing your income and expenses to show them that if granted the modification, you will be able to afford the new, lower payment. You must also be able to demonstrate that you are facing a financial hardship-lower income or higher expenses for example.
5. Do I have to be currently delinquent on my payments to get a loan modification?
President Obama has included a special incentive under the Home Affordable Modification Plan that will pay lenders an extra bonus for reaching out to homeowners not yet delinquent but at risk in the future. The goal is to help borrowers before they fall into default.
6. What is an acceptable Hardship situation?
Each homeowner has a unique set of circumstances that caused them to fall behind on their home loan, but generally the lenders consider divorce/separation, loss of income, death of spouse, co borrower or family member, illness, job relocation, military service to be acceptable reasons to consider a loan modification. A compelling hardship letter included in your application is a very important part of a successful application.
7. Will a loan modification help me stop foreclosure?
Yes, that is the goal-by working with your lender to find a loan workout solution, your loan is brought current and the foreclosure process is halted.
8. Can my missed payments be added back into my new loan modification?
Yes, the arrears can be added to the new loan balance and spread out over the term to allow the loan to be brought current.