Loan Modification Frequently Asked Questions
What is a loan modification? A loan modification is when the lender agrees to change the terms of your loan. The modification agreement may reduce your monthly mortgage payment temporarily, or it can be a permanent change over the life of the loan. This is the first option that we recommend for homeowners who want to keep their home.
How is a loan modification different from a refinance? When you refinance your mortgage, you are creating a new loan, which requires 'closing' again and closing costs. If you are behind on your mortgage payment, you will most likely not qualify for a refinance. The process is essentially the same as the mortgage approval process when you purchase a home, so the lender will pull your credit report, any missed mortgage payments will likely disqualify you for a refinance. If you have missed mortgage payments and are facing a financial hardship, a loan modification may be a better option.
How long does the loan modification process take? This depends on your lender. In general, a loan modification may take up to 90 days to process.
Do I qualify for a loan modification? The most important qualification that your lender will be looking for is your ability to make mortgage payments. That means income. If you are currently employed, then your chances of obtaining a loan modification are better, but other factors including your debt will be taken into consideration.
How much does a loan modification cost? When you work directly with your lender, your loan modification is usually free of charge. There are some attorneys who charge a fee for this service, however you do have the option of dealing directly with your lender.
How do I start the loan modification process? By now, your lender should have the tools and staff to help you get started. Your monthly mortgage statement will likely have a toll free number, and a dedicated foreclosure prevention page or section on their website. This is the best place to start.
What if I don't agree to the terms of the loan modification? You should negotiate the terms directly with your lender. In the event that the terms are not acceptable, your lender will likely allow you to short sale your home.
Why should I even try, I should just walk away and let the house go to foreclosure. Just walking away may not relieve you of the financial obligation. Believe it or not, it costs the bank more money to foreclose. Because of programs like the Home Affordable Refinance Program, or HARP, banks who participate will receive money from the federal government to help homeowners with options such loan modifications and refinancing. So there is a financial incentive ($$$) for the banks to offer assistance to homeowners. If the home goes to foreclosure, nobody wins. Even if your loan modification is declined, you may still have the opportunity to complete a short sale and receive relocation assistance from $3,000 - over $20,000 depending on your lender. If your home is within a condo or homeowner assocation, you may also be financially liable for the delinquent fees and maintenance during the time it takes your home to go through the foreclosure process after you vacate.