Homeowners experiencing financial hardship may qualify for modification of their mortgage terms.
Mortgage loans: Understanding what went wrong
Before contacting your mortgage lender, you'll need to be able to discuss why you're having problems making mortgage payments. Generally, this occurs when a financial hardship such as layoff or illness occurs. Homeowners may find it impossible to bring mortgages current if they've been out of work for weeks or months, and their new jobs may not pay enough to make their mortgage payment without help from their lender. Gather the facts about your hardship and plan to discuss what happened, when it happened, and what you can do now (today) to bring your mortgage current. Mortgage lenders require proof of income before approving mortgage modifications; they must be confident that you can continue making mortgage payments after your modification is completed.
The 31% rule
Most modification programs follow similar guidelines to the government's HAMP program, which seeks to reduce mortgage payments (principal, interest, taxes, and insurance) to no more than 31% of your gross (before tax) income. The other consideration, however, is would a modification stick? Lenders want to know your other expenses as well. If your mortgage payment is reduced to 31% of your gross income, your modified payment plus your total expenses shouldn't exceed your take-home pay or your modification request may be denied.
Research how a modification can help
Use free online mortgage calculators to understand and estimate how a loan modification can help:
- Lowering your mortgage rate: You'll need to know your current mortgage rate, unpaid balance, and remaining repayment term in months. Request mortgage quotes for current mortgage rates.
- Adding delinquent interest to mortgage balance and extend repayment term: Mortgage lenders may consider this as an option to bring a defaulted mortgage current. Combined with a lower mortgage rate, this may provide lower mortgage payments and a fresh start--you won't have to worry about coming up with several payments to bring your account current.
- Changing mortgage type: Low mortgage rates are making fixed rate mortgages much more affordable; if you have an adjustable rate mortgage, it may be possible to convert your mortgage from an adjustable rate mortgage (ARM) to a fixed rate mortgage (FRM).
Mortgage loan servicing companies are required to gain approval from mortgage investors and mortgage insurance companies before approving mortgage modifications. This can cause lengthy delays. Minimize approval delays by following your mortgage company's instructions to the letter. Double check that your documentation package is complete before sending it to your mortgage company. Follow up on the progress of your mortgage modification every week. Keep a log of dates, times and the names and departments of people handling your modification request.
If your cannot get through to your mortgage company, or they don't respond to your requests for a mortgage modification, please contact a HUD approved housing counselor for assistance.