A loan modification is something that many people utilize to try and improve the terms of their home loan. Unfortunately, this subject is fairly confusing to most people. If you are thinking about attempting to renegotiate your loan then here are some frequently asked questions to help you understand the process a little better:
What is loan modification?
It's an adjustment of at least one of the major terms of the mortgage. It basically results in more agreeable payoff terms for the homeowner. The modification might result in a lower interest rate or a longer payoff period.
Will you qualify?
There is a better chance of it now than ever. With the recent HAMP act passed by the government lenders are more willing than ever to modify burdensome loans.
What is HAMP?
It is a program started by the government that pays companies when they give modifications. In other words, lenders are getting reimbursed for doing this. It's understandable why companies would be reluctant to modify a loan. After all, they stand to lose from it because they are giving better terms to the borrowers. They used to be very hesitant to do this. However, now that they are getting paid to do modifications they are a little more lenient about who they accept. You still have to offer a compelling case. After all, not just anybody can qualify. You have to prove that you will be able to handle the new loan terms. There is no point in giving you a better rate or more time to pay it back if you still do not have sufficient income or savings.
Do you have to be behind on payments already to qualify?
No, not necessarily. You just have to prove that you will have trouble making the payments in the future.
Should you hire a loan modification expert?
It depends on your level of knowledge of the situation. If you have little negotiating experience or loan knowledge, it would definitely be advisable. Sure it's an added expense, but they will probably be able to get you better terms than you could get by yourself.
Will it hurt your credit score?
Yes, it most likely will. It is not nearly as devastating as a foreclosure, but it will still drop the score somewhat. The bottom line: getting a loan modification might be your best option. It might hurt your chances of getting a good interest rate for the next couple years, but it's a far better choice than getting your home repossessed.
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