Home Loan Modification Qualifications

Qualifying for Home Loan Modification May Not Be Your Best Option

You also have options for stopping a foreclosure. If you’ve recently received a foreclosure notice like millions of other Americans have in the last few years, you’re probably going crazy thinking of what you should do. You need to realize that there are options available to you that may be able to prevent the foreclosure from being pushed through.

Ways A Foreclosure Can Be Stopped

The first and best option is always to contact your lender and try to negotiate a compromise. You might not believe it, but lenders really don’t like filing for a foreclosure for a number of reasons. Firstly, a foreclosure suit can be a drawn out process that is very expensive. The second reason is that because of the housing market collapse, the value of many houses is now lower than when the mortgage loans were awarded, so the lender would actually prefer you to just keep up your repayments. Don’t leave it too late though, contact your lender when you know you’re having problems and they may be able to lower the monthly repayments and extend the term of your loan, or adjust your interest rates to make the installments more manageable for you.

A lump sum payment. See if one larger payment would prevent a foreclosure from going through. If it’s just a onetime payment you might be able to take out another loan or ask a member of your family or a close friend to temporarily loan you the money (in which case, get a written agreement to prevent future falling outs). It’d be stupid to lose your home if preventing it required a onetime payment that you could somehow raise the funds for.

Selling your home is another option. It sounds a bit drastic but you could offload the house before it’s taken from you. If you do decide to go down this route you’ll have to sell fast which may mean you won’t receive the current market value of the property. The validity of this option really depends how much equity you have in the property and the remaining balance on your loan.

Contact a HUD qualified housing counsellor who will be able to give you free advice on options such as the Home Affordable Modification Program (HAMP), which could help to reduce your monthly installments to a level whereby they can be paid. Lenders are given financial incentives by the government to participate in this program. If you’re having real trouble meeting your mortgage repayments, have been unfortunate enough to lose equity in your property or have already been awarded lower interest rates, you may qualify for this program and lenders may even be prepared to write off a portion of the loan.

File for bankruptcy. There are two different filing options, chapter 7 and chapter 13 bankruptcy. This is really only a measure which should be used as a last resort as it can seriously harm your credit rating and make it extremely difficult to successfully obtain a loan further down the line. Speak to a certified professional regarding other options before deciding to file for bankruptcy, as there’s no going back once you have.

Deed in lieu of foreclosure. This is another option whereby you “surrender” your house and agree to transfer ownership of it to your lender in order to settle the mortgage loan that you can’t afford to pay and have consequently defaulted on. Although you lose your home, this option does have several benefits. It usually cancels out the majority or entire amount owed to the lender, you avoid a drawn out foreclosure suit which could be costly in its own right and it’s regarded as a less serious “blemish” on your credit report.

From this list you can see that when faced with the prospect of a foreclosure you do still have several options which could improve the situation you find yourself in. Before pulling the trigger on any of these options, we would recommend that you consult a qualified professional to discuss which would benefit you the most.

Short Sale Can Be A Loan Modification Alternative

This year has seen an increase in the number of short sales as lenders have increasingly been prepared to go down this route. But what exactly is a short sale and what do you need to know before considering this as a viable way of avoiding foreclosure?

What Is A Short Sale?

A short sale is simply the sale of a house, where the borrower owes more money than the actual market value of the home. This is what’s known as an underwater mortgage. On occasions lenders will forgive the remaining balance and you’ll be left to get on with things. Why would they do this? Simple, foreclosure is damn expensive for the lenders and they usually end up with 20% less money if they do pursue a foreclosure. You can only use this option if you get the consent of the lender though.

Considerations of Short Selling Your Home

We all know that a foreclosure really roughs up your credit score and sticks around for up to seven years, but is a short sale any better? It is, but its still quite damaging to your credit score as it still shows that you can’t meet payments that you agreed to make. The rest of the balance is not always written off. That’s right, the lender may ask you to sign a contract prior to the short sale stating that the remaining balance of the loan will be considered an unsecured loan and you are expected to repay it. In other cases your lender may reserve the right to collect the outstanding balance when they want. So before committing to a short sale, you really need to work out what’s going to happen afterwards and go through the details with your lender to make sure you’re both on the same page.

Debt that is written off could be considered as a form of taxable income, meaning you’ll have to pay taxes on it. You really need to speak to a tax expert to notify you as to whether you will owe anything but the Mortgage Forgiveness Debt Relief Act of 2007 will ensure you’re not taxed as long as your debt was written off between 2007 and 2012 or because you were forced into a short sale because of a drop in the market value of your home or a worsening of your financial situation.

Short sales take time. If you are a long way down the foreclosure track, it might be too late to go this way as a short sale will typically take a few months to complete. It sometimes takes a while to get the lender to agree to the sale and you obviously need to find someone who wants to buy your home too.

Going through a short sale is favorable to a foreclosure, but it shouldn’t be top of your list. There are better options that you should seek prior to going for this. The first thing to do is call your lender and try and reason with them, maybe renegotiating the payment amounts and how often you need to pay.

Home Loan Modification and the Making Home Affordable Program

The following is a list of the current Home Loan Modification options offered under the MHA plan (taken from www.makinghomeaffordable.gov): Home Affordable Modification Program SM (HAMPSM), Principal Reduction Alternative SM (PRA), Second Lien Modification Program (2MP), FHA Home Affordable Modification Program (FHA-HAMP), USDA’s Special Loan Servicing, Veteran’s Affairs Home Affordable Modification (VA-HAMP), Home Affordable Foreclosure Alternatives Program (HAFA), Second Lien Modification Program for Federal Housing Administration Loans (FHA-2LP), Home Affordable Refinance Program (HARP), FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance), Home Affordable Unemployment Program (UP), Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HHF)