Mortgage Hardship Modification
If you are behind on your mortgage payments, you can call your lender and apply for a mortgage hardship modification program to prevent your home from going into foreclosure. Lenders who participate in the Making Home Affordable program through the federal government receive financial incentives to work with borrowers in danger of losing their homes. Programs vary by lender and loan type, and not all lenders participate.
Other People Are Reading
-
About Modifications
-
The terms of your loan permanently change when your lender approves you for a mortgage modification. Lenders often modify your mortgage by lowering the interest rate or extending the life of your loan. You and your lender will discuss which option better suits your current financial situation. Before a modification becomes permanent, lenders often require you to complete a three-month trial period. During this time, your lender will give you a new due date for your mortgage payment, with no grace period. If you miss a payment, you risk having your lender cancel the modification.
Interest Rate Modification
-
To lower the interest rate, the lender decreases your current interest by increments of .125 percent until your debt-to-income ratio is 31 percent or lower. A debt-to-income ratio is the percentage of your income that goes toward monthly debt payments. After five years in the modification program, your interest rate will increase at a rate of 1 percent every year until it reaches the current interest rate cap. The Freddie Mac Primary Mortgage Market Survey Rate determines interest rate caps in this type of modification.
-
Term Extension
-
When a lender does a modification by extending the original terms of your loan, it gives you more time to repay, thereby lowering your payments. In this modification, your lender will increase the number years for repayment until it lowers your payment to where your debt-to-income ratio reaches 31 percent. The number of years you can add to your loan varies by lender and your debt-to-income ratio. Lenders often limit loan extensions to a 40-year term. This means if you have a 30-year mortgage and modify it through a repayment extension, the lender can add up to 10 years to the term of loan, making it a 40-year mortgage.
Documentation
-
Documentation requirements for a modification vary by lender, but often include recent pay stubs, W-2s or 1099 forms, two years of tax returns, bank statements and a list of your monthly debt obligations. You and your lender will then discuss your current financial situation to asses which modification is right for you. Your lender may require you to list your assets, such as retirement and investment accounts. Your lender will also require you to write a financial hardship affidavit explaining what caused your financial situation to change.
-
