If owning a home is a major component of the American Dream, then foreclosure must be the American Nightmare. Unfortunately, foreclosures have become all too common in America as well as in other countries. With job security becoming a thing of the past and home values falling, many homeowners are having trouble making their mortgage payments and are unable to sell their homes at a price that will pay off their mortgages.
Foreclosures have become so frequent that many banks have had a hard time keeping up with them. And since the banks often lose money when they have to foreclose, many are willing to work with homeowners to help keep them in their homes. In many cases, that means that they are agreeable to loan modification.
Just as it sounds, loan modification is an alteration of the terms of a loan. When it comes to a mortgage, modifications may include reduced interest, lower payments, a plan to make up missed payments, or a combination of these. A loan modification is not the same as refinancing, because there is no new credit check and the borrower does not have to pay closing costs.
Not just anyone can get a loan modification, however. There are a number of conditions that must be met. These include:
* The borrower must experience some sort of financial hardship. There must be a reduction in income due to job loss, reduction of hours worked, illness, failure of the borrower’s business, death of a co-borrower, divorce, or some other unforeseen situation.
* Some lenders will only offer loan modification to borrowers who have missed one or more payments. Still, it’s usually a good idea to contact your lender at the first sign of trouble, even if you haven’t missed a payment. The sooner you can stave off a foreclosure, the better.
* The borrower must be able to pay the new monthly payment. That means that there should be at least some money coming in from some source. If you won’t be able to make a reasonable payment each month, the lender will probably suggest selling your home for a price lower than the amount owed, which is known as a short sale.
If you are facing foreclosure, it’s important to seek a remedy right away. Loan modification can take time, and by the time you get a notice of foreclosure, that’s something that you don’t have much of. To get the ball rolling, you’ll need to write a hardship letter explaining your situation to your lender. This letter will determine whether or not they are willing to work with you. Alternatively, you can seek help from the government or from a HUD certified housing counselor.
Foreclosure can leave you without a home, and its emotional toll can be devastating. But if you’re proactive about getting help, it can often be avoided. Whether you’re having trouble getting the money together to make your payments or are already behind, getting help quickly is crucial.
