Loan Modifications the big catch 22!
What are they and are they worth doing? A loan modification is when your loan servicer agrees to modify (change) your existing loan agreement. This is to help you with lowering your rate and/or terms to be more affordable to you. These are generally done when you are in financial distress. Although there are some out there that are trying to do this because their rate is too high and they would like a lower monthly payment.
Now the unfortunate thing about a loan modification is that most servicers will not even negotiate with you UNLESS you are at least 1-3 months behind on your existing mortgage. IF you choose to not make your monthly payments just to put you in the area of being considered for a modification you are jeopardizing your existing credit tremendously. You then have to have evidence that you are unable to make your monthly mortgage payment. You will have to provide your monthly income, monthly expenses including gas and food, your paystubs, bankstatement and loan statements and documentation. Now if by chance once you have supplied all the needed documentation and you are NOT able to prove that you are in financial distress and they deny you a modification, then you have tarnished your credit for nothing! A mortgage late is considered to be a big mark on your credit. This can prevent you from qualifying later for a refinance.
Now one would ask why not just refinance in the first place? For some they are unable to refinance because there is just no value in the home, meaning they owe more than what it is worth. And/or they can not get approved due to bad credit and/or high debt ratios. This is what we typically see from clients wanting to refinance and take advantage of these low rates. Unfortunately when you can’t refinance. Then many start to consider doing a loan modification.
Is it really better to try to do a loan modification or would it be better to learn how and when you can refinance?
If you would like to see if you qualify for a refinance or if you would like a consultation please don’t hesitate to call or email me. My team is here to help. To complete a secure online loan application click here.