What Is a Home Loan Modification?
In response to falling housing prices and rising bankruptcies, Congress passed the Making Home Affordable plan in 2009. If you're behind on your mortgage or are having trouble making your payments due to unemployment or other financial setbacks, you may qualify for home loan modification. Under this program, banks agree to adjust interest rates or extend the life of the loan so that you can make a new, lower payment and avoid foreclosure.
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Modification Programs
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The federal government program is known as HAMP, the Home Affordable Modification Program. If you have a mortgage from the Federal Housing Finance Agency, known as Fannie Mae or Freddie Mac, you may be eligible through a separate program just for FHFA borrowers. The largest mortgage lenders, including Citigroup, Nationwide, Bank of America, J.P. Morgan and others, each have their own modification programs. To find out which program can help you, start by contacting your mortgage lender. If you don't get the answer you're looking for there, apply online with HAMP at the Making Home Affordable web site.
Types of Modification
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The goal of home modification is to keep you in your house and find a payment you can afford. Lenders look at two primary types of modifications to achieve this goal. First, they'll lower your interest rate and figure the new payment based on this interest. Modifications can lower interest rates on home loans to as little as two percent. If lowering the interest rate can't achieve an affordable payment, the lender will extend the life of the loan. If you had a 30-year loan previously, you might get a 40-year loan to stretch the payments out longer.
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Eligibility
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In order to qualify for a home loan modification, you must be able to prove that you can no longer afford your mortgage. Before contacting the bank, gather information about your income and your other debts. Under HAMP, your current mortgage payments must be more than 31 percent of your gross income. The mortgage you want to modify must be for your primary residence and you must have obtained your original loan for less that $729,750 before Jan. 1, 2009.
Other Options
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If you're not yet behind on your mortgage and your credit is good, you may be able to refinance your home at a lower interest rate or for a longer term, in lieu of a loan modification. If your income isn't sufficient to afford the mortgage on your current house, even at a lower interest rate or at a longer term, you may qualify for the Home Affordable Foreclosure Alternative program. HAFA provides assistance in selling your house in a short sale and helps you find more affordable housing. Instead of a sale, HAFA may negotiate with your lender to accept the house as is, without foreclosing on the property. You may even receive money to help you with relocating.
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References
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