According to RealtyTrac, as many as 1.5 million homes in the U.S. were confronted by some form of foreclosure in the first six months of this year (2009). Because of the high unemployment rate, that number is expected to increase even with the federal assistance programs implemented by the government in an effort to slow down the foreclosure crisis. With so many homeowners either at risk of losing their homes or already in the process of foreclosure, mortgage modification is often the only way to keep up with monthly loan payments. By modifying or restructuring your mortgage, you can negotiate lower monthly payments, sometimes lower the interest rate and perhaps even extend the life of the loan. All or any of these loan modifications can make it possible for more homeowners to keep up with monthly mortgage payments and stay in their homes.
But before you trying to restructure your loan, you need to be aware of the mortgage modification qualifications required to make you eligible. There are certain criteria that you must meet before your lender will consider modifying your mortgage. You will also be required to provide written proof for some of the qualifications and of course you must be living in the home and not using it as a rental or investment property.
The first question you will be asked to verify is that something has occurred in your life or financial situation that makes you now unable to pay your currently monthly mortgage payment. This is often called a ‘documented hardship”. It could mean that you have lost your job or had your work hours or hourly wage reduced. It could also mean that you suffered an injury preventing you from working for a period of time or accumulated a lot of medical expense.
Having a death in the immediate family, especially if that person contributed to the household income is an acceptable hardship. If you’ve recently been divorced and your ex-spouse’s income is no longer contributing to the payments is just cause to seek modification. Being called to active duty in the military or even being sentenced to jail time are also considered valid mortgage modification qualifications.
The next qualification is a little more tricky in connection to the first. You have to be able to prove that you can pay a lower amount if the monthly mortgage payment is reduced. A lender doesn’t typically want to bother with the time, effort and paperwork of modifying a loan if the homeowner isn’t going to be able to make the lower payments anyway.
So this means that if you meet the first qualification of having lost your job or had your income reduced, you still must have proof that you can come up with a lower monthly payment. You may be asked to provide bank statements, pay stubs, proof of property taxes or insurance. Usually a lender requires that your monthly mortgage payment, homeowners insurance or taxes owed add up to over 31% of your gross income per month to qualify for modification.
The other primary determining mortgage modification qualification is that you are at least 90 days or three payments behind on your current loan and you haven’t filed for bankruptcy. You also cannot have missed payments intentionally in the hopes of obtaining a lower payment or interest rate. That will automatically disqualify you.
At first under the federal Home Affordable Mortgage Modification Program, only loans held by Fannie Mae or Freddie Mac were eligible. But FHA loans are also included now as long as your current lender agrees to the modification process. Even if you have an “upside down” loan, meaning that you owe more than your house is now worth, you may qualify even with a negative value of up to 125%.
The Helping Families Save Their Homes Act of 2009 also allows lenders to reinstate a loan that is as much as 12 month behind in payments, although typically foreclosure proceedings would have been started before that. The incentive to mortgage holders is that FHA will pay them a premium if they do modify the FHA loan for the borrower. Usually the monthly mortgage payments will be lowered, the loan made “current” and FHA buying down the loan by as much as 30%.
Not every homeowner will be able to meet the mortgage modification qualifications, but if you think you can it is certainly worth contacting your lender and trying. It’s a complicated process and not every application will be approved, but it is definitely worth the time and effort and could save your home.