A loan modification is a permanent change of the terms of a loan. It allows the loan to be reinstated and ideally will result in a payment plan that the borrower can afford.
Can anyone apply for a modification of his or her loan?
Banks do not offer modifications to everyone who wants them. Each lender has specific criteria that they look for when considering a borrower’s eligibility for a loan modification. In general, banks tend to look for individuals who have undergone financial hardship and are therefore unable to make the same types of payments they once made.
What is financial hardship?
When applying for a loan modification, you will have to prove how your finances have changed and why you need to have your payment plan altered. Did you recently lose your job or was there an expensive medical emergency in your family? These are financial hardships that will be taken into consideration when pursuing a loan modification.
How will the bank determine my new interest rate?
The lender should change the interest rate to the current market rate. Lenders will typically take into account the recent Freddie Mac Weekly Primary Mortgage Market Survey as well as the current nationwide average mortgage rate.
What will I have to prove to the lender when requesting a modification?
Your lender may require your financial profile, which includes your current income, available assets, and recurring expenses. You will have to show your housing debt to income ratio as well. You may also need to share your property information, the terms of your original mortgage, and information regarding your mortgage loan balance.
If I am delinquent, what happens to my balance?
Depending on the terms of your modification, the lender may simply add the delinquent amount to your balance.
Is a loan modification right for me?
Each case is different, but if you are going to fall behind on payments, you should consider a loan modification. If your financial situation has recently changed, but you wish to stay in your home, a loan modification is preferable to a foreclosure or a short sale. Contact an experienced Orange County real estate attorney who can help explain if loan modification is the right option for you.