If you cannot afford your monthly mortgage payments, due to your current financial hardship, you need to modify the home loan to prevent foreclosure. Although you can take recourse to Chapter 13 bankruptcy, loan modification is a better alternative. However, you will need to fully understand how the loan modification works to avoid the pitfalls.
Mortgage loan modification process
Loan modification entails a new agreement that modifies your original terms of a mortgage. The modified agreement may include lowering your interest rate to lower your monthly payment. It may also allow you to extend the time of repayment that lowers your payments. However, it may cost more in the long run.
Home Affordable Modification Program or HAMP is a loan modification program helps those who are unable to make mortgage payments. You will need to qualify certain requirements to be eligible.
How is HAMP processed?
There are two stages in which your eligibility for HAMP is processed. In the first stage, you will undergo a trial modification for three months. During this period, you need to make your payments on time and qualify for all the eligibility rules.
One eligibility rule is income. To qualify, you can neither earn too much nor too little. Too much income with modification doesn’t qualify since it should be affordable and too little income will make the home loan unaffordable even with a modification. Once you qualify, you come to the stage of permanent modification.
HAMP puts you back on track with your mortgage and saves your home by lowering your monthly payment to 31 percent of your income. It also lowers your interest rate. It may go as low as two percent, and may grant forgiveness on the remaining balance on your principal.
Mortgage loan modification requirements
You need to meet the below mentioned mortgage loan modification requirements to get an approval on a loan modification:
● Show financial need: It is important to show a financial need if you expect to qualify for a loan modification. This financial need must be something unavoidable, such as disability, illness, loss of job and death of spouse or child. This is not applicable for extravagance. For example, buying a new car that has got you under debt and now prevents you from paying your mortgage. Your financial need should be genuine that has negatively impacted your quality of life.
● Be able to pay: Despite your financial need, you will need to show that you can afford to pay the modified loan. Your lender may temporarily lower the payment or permanently lower the interest rate, if he finds that you are genuinely trying out ways to be able to pay. For example, looking for a new job in case of a job loss. You need to convince them that you will be able to afford the new payment for now but will soon revert to the original payment.
● Complete the documentation: Once you convince your lenders for a loan modification, you need to complete an application and write a hardship letter. The application states the details of your earnings, your debts, and monthly expenses. The hardship letter spells out the reasons for a loan modification. On submission of these documents, your lenders will review whether you meet the requirements for a loan modification.
The rules for a loan modification are quite straightforward but complex and require a loan modification attorney. Do you reside in Georgia and need loan modification? Get help from GallerLaw, a law firm based in Atlanta and get a fresh start for your life.
David Galler is an experienced bankruptcy attorney based in Atlanta, Georgia. For the last 29 years he has filed over 10,000 bankruptcy cases. He has a FIVE STAR client rating on Avvo, Kudzu.com, RateABiz.com, and Google+, among other sites. Over 99% of all Chapter 7 cases he filed have been discharged.