If a homeowner is having trouble making their mortgage payments or has fallen behind, they may be at risk for foreclosure. A mortgage modification is a good option to research, as it may help lower monthly mortgage obligations.
Enlisting the help of a Miami foreclosure attorney can significantly help the outcome when applying for a mortgage loan modification. Here is everything one needs to know about mortgage loan modifications, and how they can help homeowners avoid foreclosure.
What is a Loan Modification?
A mortgage loan modification changes the terms of a loan between a homeowner and a lender. The purpose of a modification is to lower the monthly mortgage payments, so the homeowner can afford them. Many confuse a loan modification with refinancing. A modification is different from refinancing in that refinancing replaces the original loan with a new mortgage, whereas a modification changes the terms of the existing loan.
The lender may modify the mortgage in different ways. These include lowering the interest rate, extending the length of the term, or reducing the amount of the overall principal. The terms are ultimately up to the lender. If the homeowner is already behind on payments, the lender may agree to add any past-due mortgage payments to the outstanding principal. Those payments can be repaid over the term of the loan or in a lump sum payment at the end of the loan term.
Loan Modification Programs
There are some lenders that offer their own modification programs and the changes they make to the loan can either be temporary or permanent. Most loan servicers have programs designed to help borrowers who are struggling to make their mortgage payments. If a lender or servicer does not offer a modification program, one may be eligible for an assistance program that can modify or refinance a mortgage.
Up until the end of 2016, The federal government offered the Home Affordable Modification Program. Freddie Mac and Fannie Mae implemented a foreclosure-prevention program, the Flex Modification program, which went into effect on October 1st, 2017. If the mortgage is owned or guaranteed by Freddie or Fannie, the homeowner may be eligible for assistance from this new program
Obtain a Loan Modification
If a homeowner is struggling to make payments on time, one should contact the lender or servicer to determine whether a mortgage loan modification is possible. It is recommended to ask for the loss mitigation department. A foreclosure attorney who specializes in loan modifications can help homeowners get the best possible terms when applying for a modification.
A lender will usually ask the homeowner for a hardship letter, in which the homeowner will explain their circumstances that led to them being unable to make the mortgage payments and why they’ll instead be able to meet the revised obligations. The lender may also require tax returns, paycheck stubs, and a monthly budget. Always confirm with the lender what documents they require.
Talk to An Expert
There are some disadvantages that come with securing a loan modification. If the loan is being modified due to a financial hardship, a homeowner’s credit score may be negatively impacted. In addition, the loan term could be extended, meaning it will take longer to pay off the loan and will result in more interest. For homeowners that fear they will lose their homes however, these disadvantages are a welcome trade-off to losing their home.
When looking at options to avoid foreclosure, a loan modification is a great alternative. One of our experienced Miami foreclosure attorneys can assist borrowers with negotiating the best terms with the lender or loan servicer. Contact Graham Legal, P.A. today for a free no-obligation consultation!