A loan modification is a long-term answer to an economically killed borrower who otherwise would never be able to afford to stay in his home. A lender may approach to consider a loan modification before a borrower gets behind on a single payment. A homeowner may be late on payments, seriously in default of his loan, bankrupt, or even in the early stages of foreclosure proceedings to be considered for a change of his loan.
If unforeseen circumstances have jeopardized your monthly mortgage and you do not see any financial relief in the near future, immediately contact your lender and explain your latest change in financial status. Depending on the current relationship between you and your lender (which means you are updated with your payments or have been notified about foreclosure or somewhere between), a loan modification may be the most beneficial approach to the problem for both you and your lender.
The change of an existing loan is the complete restructuring of the old loan for a new loan with moderately to drastically different terms. These new conditions are based on many factors. The terms of your current loan are a big one. Exactly how serious is the default level of your loan? As you can imagine, the more current you are, the better are your opportunities for a favorable and more reasonable offer from the lender. What kind of pain have you delayed - is it simply bad planning on your part, buying more houses than you could really afford, college expenses higher than expected, job loss, loss of a husband or a serious illness, etc? This is another crucial factor in the bank's consideration of your loan modification request. What is your income now and how reliable is it? Do you work on assignment, are you self-employed, are you in a stable workplace?
All of these income issues will be considered as part of your request. Your total credit rating will also be reviewed. Just like filling out your initial loan application, you will need to list all monthly obligations in addition to your mortgage, so that the bank can decide if you will qualify for the new loan.
A loan change is evaluated with these factors in mind, so that the new modified loan is cheaper to the borrower. Your monthly budget is taken into account when determining the structure of the new loan. Several options are available to the lender.
A lump sum (sum of all installments and fees) can be added to the existing loan and a new monthly payment calculated on the basis of this new loan amount.
The term of the loan can be extended - extended - to lower the monthly obligation (remember, the longer the term of the loan, the more you pay the home in the long run, but at least you can stay in your home).
The interest rate can be lowered, thus lowering the monthly payment.
An adjustable interest rate can be changed to a fixed rate - secure the borrower a fixed, affordable monthly payment without any surprises.
A percentage of the borrower's income can be used as a cover for the monthly mortgage loan.
A brand new type of loan product may be offered that may differ from the above-mentioned loan or may be a combination of them.
There is often an additional loan modification fee that is charged and collected separately for the new loan. Be sure to ask questions and know exactly what you agree with with your new modified loan.
Remember, it's always cheaper in the long run for the lender to work with you to make your home loan cheap to you. It is extremely expensive and very time-consuming for a lender to take a home through the entire foreclosure process. They would really prefer not, but if they are forced they will surely! A loan modification is the most beneficial solution for staying in your home and for the bank to save a lot of time, money and legal headaches.