If your lender won’t give you a loan modification, join the crowd. Just because you asked for one, and just because being granted one could save you from going through foreclosure, doesn’t mean your lender has to grant you one. Before you give up on getting a loan modification, make sure you’ve given it your best shot. If you still fail to achieve one, you have other options besides foreclosure.
Appeal a Denied Loan Modification
If your lender denied your request for a loan modification, don’t take “no” for an answer. Ask why you were denied. If you make a mistake with the paperwork or leave something out, your application might not be reviewed, advises Bankrate.com. Make sure you included everything the lender wanted: paycheck stubs, a hardship letter, a budget and anything else your lender specified. If you need help, you might be eligible to get assistance from a U.S. Department of Housing and Urban Development counselor.
Principal Reduction Alternative
If you owe more than what your house is worth, you might qualify for a Principal Reduction Alternative through the Making Home Affordable program. You need to meet some qualifications, such as owing more than 115 percent of the home’s value, having a mortgage payment greater than 31 percent of your gross income, having a financial hardship that puts you in danger of losing your home and proving you have an income that would allow you to make the modified payments.
Forbearance is a temporary measure to get you through a tough time. Under forbearance, you pay a reduced mortgage or your mortgage will be suspended. At the end of the forbearance period, you start making your regular mortgage payments again. People who are on reduced pay from disability, for example, might use this option if they will return to work shortly.
Your lender might agree to let you sell the house for less than what you owe and call it even. Your lender typically needs to approve the selling price. This procedure is called a short sale. You still lose your house this way, but it’s better for your credit score than a foreclosure.
Deed in Lieu of Foreclosure
Another option where you lose your home, but don’t damage your credit as much as you would by going through foreclosure is called a deed in lieu of foreclosure. Here, you give your home to the lender, and your lender may or may not forgive your deficiency balance.
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