If you lose your job or have a mortgage with an adjustable rate that is pushing your payments out of range, you might be eligible for a loan modification. Keep in mind, however, being eligible for a loan modification and receiving one are two different things.
Background
According to a federal government Web site, the Home Affordable Modification Program “commits $75 billion to keep up to 3 to 4 million Americans in their homes by preventing avoidable foreclosures.” This program assists all borrowers (even those whose loans are guaranteed by entities other than Fannie Mae or Freddie Mac) by providing incentives to lenders for successful modifications.
Eligibility vs. Qualifying
To be eligible for the program, a homeowner must meet all of the following conditions:
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Be the owner-occupant of a one to four unit home;
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Have an unpaid principal balance that is equal to or less than:
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1 Unit: $729,750
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2 Units: $934,200
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3 Units: $1,129,250
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4 Units: $1,403,400;
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Have a first lien mortgage that was originated on or before Jan. 1, 2009;
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Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31 percent of your monthly gross (pre-tax) income; and
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Have a mortgage payment that is not affordable due to a financial hardship that can be documented.
Only your lender, however, can determine if you qualify for a modification. While in many cases it is in the lender’s best interests to qualify an eligible applicant, corporate policies and your individual circumstances will dictate their decision.
Any change to the original terms of a loan is considered a modification, but these are some of the most common adjustments:
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Lowering an interest rate
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Changing an adjustable rate to a fixed rate
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Reduction in principle
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Reduction or waiver of late fees
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Extension of the loan term
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Adjusting the monthly payment to a percentage of monthly income
Myths & Scams
It is a common misconception that homeowners need to miss a mortgage payment before they can enter into a loan modification or other distressed property actions. This myth has caused many people to damage their credit and harm their position to negotiate for a modification. Don’t wait! Contact us to find out if your loan servicer is participating in the program.
Learn about other myths and scams.
