Foreclosures are a problem that can affect anyone. If you’re trying to avoid foreclosure, you’re not alone. One out of 200 homes gets foreclosed on, according to the FDIC.
Luckily, there are a few ways you can avoid foreclosure. Wondering if you can avoid foreclosure by loan modification? Then this guide is for you. We’re here to help you see whether or not modifying your loans is a good way for you get keep from getting foreclosed on.
In this guide, we’ll answer all your questions about how loan modification might be able to stop foreclosure. Keep reading to learn how you can keep your home.
What is a Loan Modification?
A loan modification, or mortgage modification, means changing the way you make mortgage payments to make it easier for you to meet them.
When you change your loan agreement terms, you can often get a lower monthly payment that you’ll be able to make every time. You can also modify your payments in other ways besides lowering the payment — but that’s typically the goal.
To get a lower monthly payment, you have a few different options. You could negotiate with the lender to get a longer loan term, so you pay small portions each month for a longer period of time. Or, you could work to get a lower interest rate, or even a lower principal amount altogether.
Sometimes, you’ll already be in default before you start seeking this option. You might want to try adding your overdue payments to your principal amount if this is the case. This helps buy you more time to make the payments you’ve missed.
What is Foreclosure?
This could be your first time facing foreclosure. Let’s take a quick look at what it is so you know what you’re up against.
People hardly ever choose to foreclose their homes on purpose. Instead, this is what happens when you can no longer make your mortgage payments. You might have medical issues, a job loss, or a host of other reasons that put you in a different financial situation. Suddenly, the payments that you were able to make each month become impossible.
As mentioned above, foreclosure is actually quite common. People may think “this can never happen to me” — and then it does. You can’t make your mortgage payments like you used to, and then what?
The next step in foreclosure is that you have to decide whether to hand the home over to the bank or to simply walk away from it altogether. The exact process varies depending on the state you’re in. But there’s always a period after the threat of foreclosure closes in where you can redeem yourself and make up for your lost payments.
If you can meet these redemption period requirements, you’ll get to keep your home. That’s where the chance to avoid foreclosure by loan modification comes in.
Does Loan Modification Stop Foreclosure?
Does this strategy really work? Although there are no guarantees when it comes to a foreclosure situation, loan modification is one of the best strategies for putting a foreclosure scare behind you and keeping your house.
The key is to get your loan modification approved. If you don’t get approved, the bank can move forward with foreclosure. But if you and the lender can reach an agreement that you can stick to, you can get back to making regular payments on your home.
How to Avoid Foreclosure By Loan Modification
So, what does it take to get loan modification approval?
The first step is to get in touch with your lender. Don’t wait and panic about the impending foreclosure. It’s time to take action — and you can’t do it alone. You need to get your lender on board and work out a plan.
Ideally, you’ll perform this step as soon as you find you can’t make your mortgage payments anymore (or can’t make them consistently like you used to). The longer you wait, the more real the possibility of foreclosure becomes. However, no matter what stage you’re in, it’s never a bad time to try to avoid foreclosure by loan modification.
Your lender should have a department specifically focused on helping you keep your home. Ask to speak with them, and get free advice from a housing counselor at the same time.
However, be wary of scams that promise to help you avoid foreclosure. One sure sign of a scam is asking for money upfront. Legitimate help won’t ask you to pay a fee when you’re already struggling financially.
You’ll have to submit a loan modification application for approval. This is full of critical documents, so take care and make sure to compile everything you’ll need.
The HAMP Program
The Home Affordable Modification Program, or HAMP, might also help you through this scary time. This federal program is made to help people keep their homes.
There are two HAMP tiers. In Tier 1, your mortgage payments get lowered to 31 percent of whatever your monthly income is before tax. If you don’t meet the Tier 1 requirements, you’ll be in Tier 2.
If you choose this option, you’ll be working with a designated manager who will be your point of contact throughout the process. Make sure to keep in close touch with them, and don’t be afraid to ask for frequent updates.
Is There Foreclosure After Loan Modification?
If your lender is willing to work with you, or you can qualify for the HAMP program, there’s a good chance you will manage to avoid foreclosure by loan modification.
After you’ve come to an agreement with your lender or through HAMP, it’s important that you do your best to stick to it. If things change and you can no longer meet your new terms, you should contact them right away to work it out.
Only in the worst case scenarios will you still be faced with foreclosure after these steps. But there are still ways to avoid it, such as with a short sale. We can help with that — click here to get a quote.