| If you’re reading this, you may be one of the many homeowners facing foreclosure, or suffering from financial distress, or maybe you know someone who is facing those hardships. Either way, education is any homeowner’s first responsibility.
Yet with all the information and misinformation out there, it can be hard to determine the best option for each particular situation. A mortgage modification might be the solution that best fits your circumstances.
Banks want to avoid foreclosure just as badly as the homeowner. If a property goes into foreclosure, a bank risks losing fifty percent of its value. The more preserving option, for both parties, is to find a way that keeps the homeowner in their home. That option is a mortgage modification.
Qualification
If you qualify, your lender will work with you to adjust your mortgage in any or all of these ways: lower the interest rate, switch the loan from an adjustable to a fixed rate, or even reduce the principle balance.
This option is ideal for those who have recently experienced a rate increase, or who may have had a sudden drop in income, making the next monthly payment just out of reach.
Each bank or lender may have a different department that handles the process, but any customer service line can direct you to a representative who will discuss your options with you.
You will need to provide an assortment of information to see if you qualify for a mortgage modification. The list includes: monthly mortgage statement, information about any second mortgage or home equity line of credit, credit card balances and dues, balances and dues on other loans (student, car, etc), your most recent tax return, bank accounts, pay stubs/income verification.
A hardship letter might also be helpful. In it, describe the circumstances that led to your reduced income or sudden financial burden that left you unable to satisfy your payments.
If the lending institution who owns your mortgage is Fannie Mae or Freddie Mac, a Home Affordable Refinance might be available to you. This can further lower your payments. Visit www.MakingHomeAffordable.gov for more information on this program.
Cautions
All of this information and the steps involved may seem overwhelming at first. While you’re trying to sort things out, be wary of any company, organization or persons that approach you with promises that seem to good to be true.
The Department of the Treasury and The Justice Department have been making concerted efforts to crack down on those preying on homeowners experiencing financial distress. That is why educating yourself is always the first line of defense.
Never work with anyone who demands upfront fees, makes guarantees to get you out of foreclosure or advises you to stop payments to your lender.
All government-affiliated lending institutions and refinancing programs released a statement ensuring the public that no government-endorsed institutions will ever ask for an upfront fee.
Things to Keep in Mind
Though mortgage modification can help drastically, it is a largely unexplored option. A recent estimate reports that only 12% of homeowners have begun the process to secure a loan modification.
The fact is that most homeowners simply don’t know it exists. Or, that no one has yet explained it to them in terms that make them feel comfortable with the application or qualification process.
A mortgage modification isn’t for everyone. It mainly benefits those with a recent financial downturn, leaving their monthly payments just a shade too high.
The success rates are also skewed by homeowners who successfully complete a loan modification, only to fall back into default even after the newly adjusted rates. This occurs in as many as 60% of mortgage modification cases.
Work with a real estate profession who can explain the process and help you decide if a loan modification is the best option. If so, you can proceed together to take the next step with the confidence of having a trusted professional by your side.
They might also advise a short sale as a means of avoiding foreclosure. This is another relatively unexplored option for those who don’t qualify for a modification.
To be able to choose the option that’s right for your situation, you must first educate yourself in all the options that are available. A real estate and short sale professional can help you plan, but only you can make the choices that determine your future. |
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