Sometimes, you can't make the payments as stated by your original mortgage loan. In these instances, you might qualify for a loan modification, which can help you avoid foreclosure and keep ownership of your property.
But what are loan modifications, how do they work, and are they right for you? Read on to discover the answers to these questions and more.
A loan modification is any type of modification, or change, made to an existing mortgage — making it easier for you to keep up with your mortgage payments. Depending on the terms of the loan modification, you might receive a new interest rate, have a different repayment schedule, or something else entirely.
In any case, loan modifications are important tools because mortgage lenders always want to avoid foreclosure. It’s much better in the financial long run for lenders to ensure that their borrowers can continue to make loan payments, even if those payments are smaller than the original agreement. The foreclosure process is costly and time-consuming — for both the borrower and the lender, so it is in their best interest to make new arrangements and work with you.
Going through the loan modification process is often preferable over other strategies, like mortgage forbearance, a deed in lieu of foreclosure, or a loan refinance. Loan modifications don’t impact your credit score nearly as much as the aforementioned options, and you have the convenience of staying with the same loan servicer.
To get a loan modification, you need to speak to your mortgage lender. For example, if there's a risk of foreclosure in the future, you can ask your lender to modify your original loan to make it easier for you to stick to your monthly payments.
Depending on what you and your lender work out, your loan modification can take several different forms, such as:
In any case, it’s best to speak to a housing counselor about your financial situation. They can help you determine whether this or something like refinancing your home loan might be better for your personal finances.
There are several types of loan modification programs you can pursue if you are a homeowner facing foreclosure.
Some examples include:
If any of these programs sound interesting, ask your lender about what you may qualify for.
Not everyone can immediately approach their lender for a loan modification.
In most cases, you’ll only qualify for a mortgage modification if you meet the below requirements:
If you qualify, applying for a loan modification is relatively straightforward.
First, gather the proof of your financial hardship, then contact your mortgage servicer. Prepare ahead of time to make your case and be persuasive about your need for a loan modification.
Once you connect with your lender or servicer, work out a loan modification plan. They may negotiate with you on the exact terms and conditions of the modification. If needed, stress the fact that you are unable to make payments as they are currently required. Most lenders will be happy to work with you through a loan modification if you can prove it’s absolutely necessary.
It’s clear that a loan modification could be just what you need, especially if you need long-term mortgage relief. However, you may not qualify for a loan modification for one reason or another, such as not having the right kind of loan or not being able to provide appropriate proof of hardship.
If your lender denies you a loan modification, a home equity investment can help you avoid foreclosure. With a home equity investment, a property investor purchases an equity share in your home, sometimes paying you a lump sum in cash based on how much equity you’ve built up so far.
In exchange, the home equity investor receives profit from the equity appreciating over time. At the end of the home equity investment term, you can then pay back the investor for whatever the equity is worth, regaining 100% ownership of your property.
Home equity investments give you access to immediate equity capital and often result in reduced or no mortgage payments. When you co-own with Balance, we’ll replace your mortgage loan with an equity investment. This way, your mortgage would be paid off, and you'll simply make a monthly payment to Balance to cover your occupancy of the home and your share of the insurance and taxes.
In the end, a loan modification can help you keep your home and escape the possibility of foreclosure. But loan modifications aren’t available to every American, and if you have a conventional loan, you may need an alternative solution.
That's where Balance comes in. With Balance, you become a co-owner of your property and retain the right to buy us out at any time. Unlike other options where you may be forced to forfeit your home, Balance allows you to stay on the title and access your equity to consolidate your debt, repair the property, build up your credit, save cash, and strengthen your overall financial profile.
Contact us today to learn more.
Sources:
What is a mortgage loan modification? | Consumer Financial Protection Bureau
Foreclosure Process | U.S. Department of Housing and Urban Development (HUD)
