Any loan modification program will change the terms and conditions of your mortgage so you can better afford the monthly payments. You have two options: the federal government's Home Affordable Modification Program or an in-house modification. The similarity is that they both need your lender to agree to lower your interest rate, extend the length of the loan or make other changes to keep you out of foreclosure.
To qualify for HAMP, you have to occupy the house, have a mortgage before January 1, 2009, be delinquent in payments or likely to default, and have payments that exceed 31 percent of your gross monthly income. You'll also have to provide verification of income and other financial status, and you'll need to set up an escrow account to pay real estate taxes and insurance.
You generally start HAMP with a three-month trial period. If you meet all payments, the modification becomes permanent. HAMP loans usually will start with a reduced interest rate, as little as 2 percent, but will include provisions for the interest rate to change after five years. You also can get the term extended up to 40 years, which will greatly increase total interest over the life of the mortgage.
An in-house modification is more flexible because it's totally up to the lender to change the terms. A homeowner who doesn't qualify for HAMP can get an in-house modification if he can prove to the lender that it is justified. You'll still have to provide complete financial information, based on net income rather than the gross income used by HAMP.
In-House Is Quicker
You can get an in-house modification more quickly and there's no three-month trial period. You also will get a fixed interest rate for the term of the mortgage, rather than the floating provision of HAMP. You'll usually have the same options for extending the term to reduce monthly payments but with a fixed interest rate you can project your payments over the years more exactly.
In-House Is Unlimited
In-house modification also does not have a dollar limit. HAMP is limited to loans with balances under $729,000. You also can get in-house modification on a vacation or second home, while HAMP is limited to your primary residence.
Other In-House Options
You also may have more options with in-house modification. You might qualify for such things as temporary suspension of interest or a temporary interest-only loan if you anticipate improvements in your income in the future. In-house modifications can involve any changes the lender is willing to make to keep your mortgage active.
- Making Home Afforable: Frequently Asked Questions
- Making Home Affordable: Home Affordable Modification Program
- Linda Garrett Law Office: Loan Modification
- Law Office of Syvtlana Kaplun: Loan Modification
- Brookings: Designing Loan Modifications to Address the Mortgage Crisis and the Making Home Affordable Program
- HSH: What if You Don't Qualify for HAMP?
- Bankrate.com: New Home Loan Rules Coming