Are you wondering if a loan workout may be the answer you are looking for to help avoid foreclosure or be able to afford your home? If so, then you need to learn about the process so you will know how to qualify and what to expect. Distressed homeowners trying to learn about the loan modification process are finding themselves frustrated and confused. To help you learn the basics, here are the Top 5 Questions and Answers about loan modifications:
- A successful loan modification should offer the homeowner an affordable and sustainable monthly loan payment. What does “loan modification” mean exactly? By definition, a loan modification is a permanent change in one or more terms of a home loan that results in a more affordable monthly payment. A delinquent loan is brought current, and the interest rate may be lowered, a longer term offered and sometimes a reduction in the principle balance.
- The federal program, Making Home Affordable Modification, mandates that the lender waive any late fees and penalties. Will I have to pay all the late fees & penalties? Most lenders are offering modification programs that waive the late fees and penalties. Always ask for a detailed accounting and description of all fees from your lender-some fees may not be justified or allowable and should be waived.
- Most lenders are participating in Obama’s home rescue plan, Making Home Affordable Modification-under this plan you do not have a new payment for at least 30 days, and you are on a 3 month trial for the new modified payment. I can’t afford to bring my loan current-can my missed payments be added back in to the loan? Generally your lender will allow your missed loan payments to be added into the new loan balance and spread out over the term to make it affordable. Some lenders may require the first months new loan payment as good faith for the new loan modification. You must pay this new, lower payment on time for the first 90 days, then that payment is fixed for 5 years.
- When you provide your lender with properly completed financial statements, you prove to your lender that you can afford the new payment. How can I find out if I will qualify for a loan modification with my lender? The # one requirement your lender is looking for is proof of your ability to pay the new loan payment now and in the future and evidence that you have suffered a financial hardship.
- If you see a problem continuing to make your payments, don’t wait, contact your lender to start the modification process. Bear in mind, the homeowners already in default will receive assistance first. You need to be persistent to get the loan modification process started. I am not late yet on my payments-but I am struggling and foresee a problem-can I still get a loan modification? Yes, the Federal Government is strongly encouraging lenders to reach out to all borrowers with adjustable rate and option arm loan programs now before they go into default.