What Does Loan Restructure Mean?

If you face foreclosure, consider for a loan restructure.

People that are just steps away from foreclosure caused by high monthly payments or unrealistically high taxes may want to consider a loan restructure. However, you should fully research a loan restructure to assure other costs or fees don't make this new loan option even more expensive than your current one.

Loan Restructure

You might need a loan restructure if uncontrollable external factors require an immediate change in the principal payment of loan. Factors include a sudden decline in the market value of your property. A restructure requires the lender to change or revise the original loan agreement.

Process

Perhaps you purchased a home valued at $350,000, taking out a 15-year mortgage at a 6 percent annual interest rate. However, just after buying the property, the value decreased to $275,000 due to severe changes in the market. You may ask for a loan restructure from the lender when faced with foreclosure. The lender may decide to write off the excess amount to keep the borrower in the home and making his monthly payments.

Requirements

Eligibility for a loan restructure is not difficult to obtain, but homeowners must be current in their mortgage payments, or have missed only one to two. You can solicit a loan restructure even if you don't live in the home and it is an investment property. You are not required to have a hardship letter, although it may influence the authorization. Income or credit scores do not influence the loan authorization.

Advantages

Restructuring a loan may help you reduce the total amount owed. This is especially true if you live in an area where property values have decreased drastically and many owners see no option, except to walk away from the loan and the home. In the restructure process, real estate attorneys will evaluate the loan documents. They will check to see if they specifically give the advantage to the lender and verify that they comply with the federal real estate settlement procedures act. If lawyers find any discrepancy, there can be a loan restructure. This will allow the homeowner to have a more realistic property value, along with a lower monthly payment and lower total loan payoff.

Disadvantage

One disadvantage to a loan restructure is exceptionally high closing costs. Borrowers could end up paying more if the restructure is not considerable. This amount added to the loan restructure may end up being more than the original loan payment. Analyze every aspect of restructuring before choosing this refinancing method.

References

• USDA: Loan Restructuring
• Scottsman Guide: The Basics to Foreclosure and Loan Restructure