As a result of the mortgage forbearance we are seeing homeowners take full advantage of a common option that allows them to keep their home, put the missed payments behind them, and pay a lower monthly payment. This option is known as a Loan Modification
What Is A Loan Modification
A loan modification is a change to the original terms of your mortgage loan. Unlike a refinance, a loan modification doesn’t pay off your current mortgage and replace it with a new one. Instead, it directly changes the conditions of your loan.
Even when COVID is not a factor lenders offer these to homeowners experiencing financial hardship. Keyword “hardship” If you decide to go down this path you must be honest and truthful. If approved you can expect to see your monthly payment reduced (lower interest rate, reduced monthly payment, and your loan extended to include all of the missed payments). If you do decide to pursue a modification your lender will have you complete a “mortgage assistance application” You’ll provide basic information about yourself, your hardship, and your property. You’ll be asked to provide documents supporting the hardship such as income statements, unemployment verification, a list of all your household expenses ($ amounts included) & debts, along with your tax returns over the last few years.
If approved they’ll give you a three month trial period with your new payments. If you’re on time with each payment they will send a new package to your house finalizing your “modified loan.” Remember, lenders are experiencing their own hardships so you will need to be very proactive with this approach. We’ve helped several homeowners over the last year that wanted to sell their property while pursuing a loan modification. The shortest was two weeks and the longest was nine months.
What If I Can’t Afford The Monthly Payment If I’m Approved
Financial hardship is not an easy mountain to climb. Sometimes extra support or a fresh start is just what you need. Remember when we said above that throughout the process of pursuing a loan modification you must be honest and truthful. Well the same applies if you can’t afford the new monthly payment your lender has offered you. Sometimes you can appeal their decision and have your file re-reviewed to see if they can lower your monthly payment further. If this isn’t the case you still have options available.
If you were to do a Google search on ways to pay your mortgage without selling your house most articles would tell you that you should rent your property or list in on the market as a “Lease Option” or “Rent to Own” Unfortunately, with a loan modification you can’t do this because when you completed the mortgage assistance application one of the first questions they ask you is “Do You Plan to Keep Your Home?” Again, you need to be honest throughout this process from start to finish.
So what can you do?
At that point you could do the following:
- List your property on the market and hope it sells
- Have friends or family move into the property with you to make the payments less of a burden
- Refinance the property if you’re able to make the payments after a few months
- Consider working with a home buyer on a Short Sale. A short sale in real estate is when a financially distressed homeowner sells their property for less than the amount due on the mortgage. The buyer of the property is a third party (not the bank), and all proceeds from the sale go to the lender. The process for a short sale is very similar to a loan modification except your buyer agrees to purchase your property at a significant discount for cash. Your lender may be more involved in this process and they will actually have an appraisal performed on your property.
What Should I Do Next?
At the end of the day the best option for you depends on your current finances, employment status, and ability to resume mortgage payments. When you contact your lender be sure to discuss every option in detail so you know exactly what to expect.
We’ve helped many homeowners before and since the start of the pandemic experiencing financial hardship walk away from their homes. Even after pursuing a loan modification they still find it in their best interest to start over and walk away from their problem property.
If some of what was discussed resonates with you, a family member, or close friend contact us immediately to see how we can help. If you’re considering selling your home, we may be able to purchase it. Either way send us a message now, or give us a call! 302-283-9582… We’ll still discuss all of your options with you!