Getting all of your bills paid on time can be stressful, and when money's tight it's easy to fall behind. When you start having trouble making your mortgage payments, the stress of the situation becomes even greater since falling behind on your mortgage can lead to foreclosure. If you are in this situation, modifying your mortgage may be an option.
Modifying a mortgage is different from refinancing. Whereas a refinanced mortgage results in a new, separate loan that replaces your original mortgage, modifying a mortgage makes changes to your existing mortgage. Most banks and other mortgage lenders only modify mortgages when there is a danger of default, and then only if the modifications help you to make your mortgage payments. Some mortgage lenders take part in government-sponsored modification programs, while others modify mortgages based on their own criteria.
Modifying Before Default
If you realize that you're having problems making ends meet before you start missing payments, you may be able to modify your mortgage. By modifying your mortgage before you get behind on payments you'll prevent damage to your credit rating. If your lender takes part in a federal mortgage modification program, then qualifying while your payments are current is easier. For other programs it may be more difficult to convince lenders to modify your mortgage while your payments are still current. Federal program or not, you need to show the lender that you've got serious long-term financial problems such as unemployment, illness, or an increase in payment amounts that will affect your ability to stay current for much longer.
Modifying After Default
Once you've fallen behind on your mortgage and are struggling to avoid foreclosure, you should attempt to modify your mortgage as soon as you realize that you're not going to get caught up again. You'll still need proof of your financial situation and what's caused you to fall behind, but sometimes the fact that you're behind on your payments may work in your favor. Since you will prove that you cannot afford your monthly payments, your lender may realize that modification will give you a better chance of following through on your loan and save them the trouble of foreclosure. Once modified, your new payments will be based on a percentage of your verifiable income.
Mortgage modifications that are undertaken as part of a government program require a trial period before the modification is final to make sure that the changes actually help your situation. If you're planning on trying to modify your mortgage, you need to take this into account since your payments will return to their previous level if you are still late on making payments during the trial period. Modification trials are typically three months long, during which time you'll be expected to make payments at the new rate in full and on time. If the trial is successful, your modification will go through.
- New York Times: Answers to Questions About New Mortgage Modification Program
- HUD: Loan Modification Frequently Asked Questions
- LA Times: Banks Slow to Modify Mortgages, Treasury Reports
- Bankrate.com: Want to Modify a Mortgage? Get a Trial Run
- MortgageLoan.com: Federal Loan Modification Programs
- MakingHomeAffordable.gov: Borrower FAQs - Do I Need To Be Behind on My Mortgage Payments To Be Eligible for a Modification Under HAMP?
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