Some people mistakenly assume that a home mortgage is simply about borrowing money for buying a new home. There are things that a borrower must first clarify, such as the difference between a first mortgage and a second mortgage or the required monthly mortgage payment for what you owe. Additionally, you must know the options available to borrowers with missed mortgage payments.
An aspiring homeowner facing financial problems, you may need to consider a refinance, a deed in lieu of foreclosure, or loan modification programs through your mortgage servicer before the loan becomes delinquent.
Homeownership is expensive, and you will likely need to get a loan that might be difficult to pay off. If you are struggling to pay your mortgage, consult with reliable Royal Oak bankruptcy attorneys to know the most appropriate way to deal with missed monthly payments given your circumstance.
An Overview of Mortgage Modification Programs in Michigan
From the name itself, a loan modification is meant to modify or change the terms of an existing loan to make it easier for you to stay on top of monthly mortgage payments (and avoid losing your home through the foreclosure process). Unlike refinancing, the loan is not replaced with a new mortgage. Instead, those eligible for a loan modification program offered by their lenders and servicers modify their mortgages to address delinquency. Alternatively, other assistance programs can help you modify your mortgage.
Even if the Home Affordable Modification Program (HAMP) previously offered by the federal government expired in 2016, Fannie Mae and Freddie Mac currently have a foreclosure-prevention program. If your mortgage is owned or guaranteed by either Fannie or Freddie, you may be eligible for their Flex Modification program.
Meanwhile, the federal Home Affordable Refinance Program (HARP) was replaced by Fannie Mae’s High Loan-to-Value Refinance Option and Freddie Mac’s Enhanced Relief Refinance in 2019. An experienced Royal Oak bankruptcy lawyer can explain these programs in more detail, provide mortgage help, and evaluate common foreclosure alternatives vis-a-vis bankruptcy filings.
Stopping Foreclosure Through Loan Modification Programs
Generally, mortgage loan modification is typically reserved for homeowners who are already delinquent or struggling with their loan repayment. For temporary loan modifications, you will likely need to return to the original terms of your home mortgage and repay the deferred amount before you can qualify for a new purchase or refinance loan.
After permanent modifications, most lenders would require a record of 12 or even 24 on-time payments, which can determine your ability to repay a new loan. Additionally, if your mortgage term was extended when you modified your loan, it will take longer for you to pay off your loan.
A loan modification will also likely be included in your credit report or a detailed breakdown of your credit history prepared by one of the three credit bureaus. To determine the creditworthiness of loan applicants, lenders make use of the financial information in these credit reports.
The dip in your credit score can affect your ability to qualify for other loans for a certain period of time. However, for individuals who are on the brink of losing their homes and are trying to avoid foreclosure, the benefits of a home loan modification far outweigh the consequences.
How to Get a Mortgage Loan Modification in Royal Oak, Michigan
A loan modification program is generally helpful in avoiding foreclosure. However, since the loan modification application process varies from lender to lender, it is essential to contact your mortgage lender or loan servicer as soon as possible. Generally, you must submit financial statements, pay stubs or proof of monthly income, tax returns paperwork, and other supporting documents. Some would also require proof of hardship or a financial hardship letter explaining why a modification is necessary.
A loan modification aims to help a homeowner catch up on missed mortgage payments, often by lowering the loan payment per month. Decreasing the interest rate or extending or shortening the terms of the loan is also possible. Many loan modification companies are claiming that they are experts at negotiating a modification when, in fact, haggling is not part of the legal process. Once guidelines set by the U.S. Department of Housing and Urban Development and the investor or lender have been met, the application for a loan modification should be approved.
Getting a Loan Modification Versus Declaring Bankruptcy.
Paying back a loan modification will depend on the type of modification that was approved. Some lenders would apply a reduced interest amount (to your loan’s principal) which you must later pay back. In the case of a principal deferral loan modification, the lender will reduce the amount of principal paid off with each payment. However, the deferred principal will likely be due when the home is sold or when the loan matures.
While there are no closing costs for a mortgage modification, lenders or loan servicers may charge a processing fee. Additionally, since a mortgage loan is a contract, no lender is obligated to agree to a loan modification. If your financial situation makes it impossible for you to repay the mortgage loan, you will likely be denied a modification. While you may file an appeal with the mortgage servicer, this may be a sign for you to explore other possible options. In some instances, filing bankruptcy at the bankruptcy court is more recommended than a loan modification.
Seek the Help of a Royal Oak Bankruptcy Attorney Today!
A lot of people suffered from unemployment and business closures due to the pandemic. Many homeowners are facing financial hardship and are struggling with unpaid monthly mortgage payments. However, help is only available to those who ask for it.
If you are struggling to make your mortgage payments, avoiding phone calls or procrastinating will only make things more complicated. Take action today and contact our Royal Oak bankruptcy law firm. Call us at Hammerschmidt, Stickradt & Associates, and consult with a trusted Royal Oak bankruptcy attorney.