8 Points To Guide You In Applying For Loan Modification

How To Apply For A Loan Modification

Have you defaulted on your loan and are you now having difficulty making your payments? If that's the case, don't be dejected as there's still hope! It's possible to turn things around by getting a loan modification.

Don't give up just yet, even though you may be having some trouble making your monthly payments or if you are defaulting on your loan. One way to solve this financial dilemma is through loan modification, which can greatly help in putting your loan back on track. Below, you will learn more about what this is all about, and you will come to understand how loan modification can be accomplished and what its main objectives are.

1How Loan Modification Helps

The main reason why loan modification was developed was to help consumers in making their monthly payments. Often, this works by lowering fees, thus making the payments more affordable. The following strategies are often used in loan modification: reducing the interest rate, lowering the principal amount, extending the term of a loan, and even deferring late or missed payments.

All in all, the goal is to reduce the monthly payments so that you can keep your home and keep paying the regular fees. Before you begin negotiating with your lender, you must carefully determine what you really need and make a decision about whether or not, loan modification is the best step. You must aim to avoid defaulting on your loan.

2Goals Of Loan Modification

In essence, a loan modification can accomplish several things. For one, it can help in correcting your credit. What goals you achieve, however, will depend on your unique situation. Your needs, as well as what your lender needs, are both taken into consideration. Generally speaking, the outcome largely depends on your lender or the investor who is handling your case.

Some lenders are quite sensitive to what their clients need. They are respectful of those who apply for a loan modification and are very cooperative and willing to work with their clients so that they can achieve solutions and long-term objectives. Some may even work with mortgage insurance companies in order to come up with solutions that are more consumer-friendly.

3A Cooperative Lender Makes A Difference

Be aware that some lenders take their time or they may even alter the policy in the middle of the proceedings. In case you are luckily working with a cooperative lender, try to finalize everything as quickly as possible because lenders could change policies without warning. In case you default, it will be like keeping water out from a boat with a huge hole. You can get out of that situation quickly, but the issue can potentially turn into a huge financial headache.

The only way to get out of such a situation unscathed is to keep trying. If you surrender, you will sink. Keep in mind that lenders can let go of penalties or fees that your account has accrued since you started being late or missing your payments, particularly if your account is already in default. This is definitely a huge break, and many lenders will be willing to do this for their clients; so, always make a request if your fees and penalties can be deleted from your account.

4Correcting A Loan Default

One way to correct a default during the term of a loan is by adding the balance of the current mortgage with the missed or late payments before you re-amortize the balance. Although this solution is more expensive if you consider the entire term and the end of the loan, the advantage here is that the monthly payments will be more affordable. In other words, an effective installment plan will help you to eliminate your default over time.

Loan modification can be the fastest way to fix a default compared with other solutions, but it can be hard on your total budget. So, it is crucial that you're able to manage your current expenses, especially your monthly dues. Don't forget the delinquency percentage as well.

5After Negotiating A Payment Strategy

In case you have successfully negotiated a payment plan that will help you manage your loan's default amount, set your budget accordingly so you will have enough funds to cover all your monthly expenses. This option is only going to be effective if you have already recovered from your past financial problems. Take note that you need to have enough cash to make those extra payments, plus your usual house payment.

Some lenders also grant for defaults to be carried over by using a plan known as the "six months same as cash" plan. They won't exclude you from possible loan modifications. Lenders don't often prefer this alternative, particularly if a borrower is not opting for a short sale, but this is often better than a foreclosure.

6Fannie Mae Loans

Check if you are qualified for a Fannie Mae (Federal National Mortgage Association), HomeSaver Advance (HSA) loan so that you can better manage your deficiencies. Through the HSA, a person can pay back his individual loan at a fixed rate of 5% for fifteen years. Also, the interest fee is waived for the first six months.

You will not be getting a break from your lender at this time though. You possess a different type of loan which will help you in becoming up to date with your payments, but you still need to pay it back in time. By reducing the monthly payments, the default can be slowly addressed, and there will be more cash that you can then use to pay past bills that are already due. Luckily, lenders offer resources wherein you can just put in your monthly payments. So, there is a simple way to keep your house.

7Why Remove A Loan Default

If you exert effort in eradicating defaults, you will be able to reduce payment costs. You can also keep your house at the same time. Achieving the first two objectives is quite harder than keeping your property, but it's similar to go down a different path but ending up in the same destination.

Moreover, before comparing loan modification offers, you must have a clear idea about the status of your current mortgage, as well as the term, interest rate, principal amount, and monthly fees. These details will allow you to make a more informed decision and you'll be able to assess your options better. Also, don't forget that the payoff amount and the principal balance are two different things; be aware of their differences. Learn what accrued interest is, as well as UPD and advances that your mortgage company may make, as such will increase the total sum that needs to be paid off in time.

8Contact Your Lender To Start The Process

You can ask your lender for a copy of your current statement so that you'll know the following data: the total amount you owe (including the UPB), other additional charges, and the balance that you need to pay off. It's best not to think about the total cost of the entire term of the loan after modification, as some experts say. The best option for you is to focus on short-term goals and work on making your monthly payments instead.

Still, you must have an understanding of the overall cost so that you can make the most prudent decision based on your unique financial situation. As your lender starts processing your loan modification, a lot of what-ifs will be carefully considered. Your lender will assess the financial statements that you've provided, and he will compute and give you an estimate about the amount of money that you can set aside for your monthly payments; then, he will review everything, working backward, until he gets to your term, principal, and interest.

Hopefully, this article has given you some insights about what loan modification is all about. In case you are defaulting or if you're finding it extra hard to keep up with your monthly payments, face your problem because there are solutions! Through loan modification, you can get rid of the defaults and establish a more effective payment plan, which will work to your advantage especially if you are currently having financial difficulties. Remember, you can take control of your finances today and secure your future!

About Author

Jackie Wing

Jackie Wing is an Alaska native, who enjoys snowboarding more than is probably socially acceptable. She lives in Anchorage with her two dogs Reese and Peanut, or as she likes to call them "Thing 1" and "Thing 2."