If you are facing foreclosure or are unable to afford your monthly mortgage installments, loan modification may be one of your options to avoid foreclosure. Loan modification is the restructuring of your loan agreement to allow for monthly installments that you can afford. It may include the reduction of interest rates or even the adjustments of your loan period to allow for repayment over a longer period of time. We are here to teach you about who qualifies for loan modification and the benefits and disadvantages of the modification agreements.
Who Qualifies For Loan Modification?
Applications are subjective. Your lawyer will meet with your bank or mortgage provider to come to an agreement that best meet your needs and the institution’s requirements. The process generally entails:
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Proving Affordability
To qualify for loan modification, you will have to prove that you cannot afford your current monthly mortgage installments. Whether you are unable to pay for a specified or unspecified period, you will have to provide proof of change in circumstance or any factors resulting in inability to comply with your original loan agreement.
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Completing A Trial Period
Before your loan agreement is modified permanently, your lender may require that you complete a trial period. During this period, you will pay the adjusted monthly installment to show that you can both afford and comply with the new loan agreement. Once the trial period is concluded successfully and your lender is satisfied, your loan will be modified permanently.
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Completing An Evaluation
In application for a loan modification you will have to provide several documents to substantiate your application. Your lawyer will play a crucial role during this period as the documentation may differ depending on the institution. Generally, applicants are to submit proof of income; recent tax return and bank statements.
The Benefits of Loan Modification
The benefits of loan modification depend on the agreement between the borrower and the lender. The greatest benefits include:
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Avoiding Foreclosure
Loan modification benefits both the borrower and the lender as it saves both parties from entering the lengthy foreclosure process.
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Saving Money
An extended payment period could benefit the borrower as it may see savings occur in the long run as the loan amount may stay the same and only the repayment period changing. Your lender might agree to reduce the interest rate of your loan. This will provide you with an opportunity to save money that would have been spent on the interest rate allowing for a short breather, which may be invaluable in periods of financial instability.
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Impact On Credit Rating
Unlike foreclosure, modifying your loan may not have a largely negative effect on your credit rating providing that you stay committed to your modified installments and do not miss a payment. Your rating will also depend on what your lender communicated with the credit bureau about your loan modification.
The Disadvantages of Loan Modification
The most common disadvantages for borrowers are:
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Tax
In the case of investment properties, borrowers may see an increase in income tax if the lender decides to reduce the principal balance of the loan. This is to prevent the borrower from being unjustly enriched from the loan modification.
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Processing Costs
During the loan modification application process, unforeseen processing costs could arise. The borrower will be liable for those costs but may negotiate with the lender to try and keep these at a minimum. There may also be unexpected legal fees if you are not careful. It is therefore important to have an experienced lawyer. Having an experienced lawyer will not only save you money, but will also make the process a great deal simpler. The benefits of having a loan modification attorney by your side are endless. Contact Gary I. Handin., P.A., to discuss your options and protect your home from foreclosure.