5 Home Loan Modification Myths
Author: Jenny Evans
Published: Mar 16, 2009
Loan modification prevents foreclosure for many homeowners. Separate fact from fiction by learning the 5 most common misconceptions about mortgage adjustments.
With the current economic crisis, many homeowners are considering loan modification as a way to avoid foreclosure. But even the most educated people sometimes have mistaken impressions about loan modification. Here are 5 of the most prevalent myths concerning loan modification.
Myth #1: Lenders would rather foreclose than modify your loan.
Mortgage lenders actually want to avoid foreclosure as much as homeowners do. Foreclosure is a costly, time-consuming process for them: they have to pay someone to handle the foreclosure process, fix up your house, and try to sell it. With declining house prices and the difficulty of selling real estate right now, a foreclosure is costlier than ever for lenders. Lending institutions do not want your house; they want you to pay on your account. If they are convinced that loan modification will enable you to make payments on your house, they are likely to agree to adjust your mortgage.
Myth #2: You have to be late on your payments to get a loan modification.
To obtain a mortgage loan modification, homeowners only need to prove that they are in imminent danger of defaulting on their loan. If you have experienced a recent financial crisis that will make you unable to pay your monthly mortgage payments in the future (such as divorce, loss or reduction in household income, or medical bills due to illness or injury), then you may qualify for mortgage reduction. Whether you are still current on your payments or have already fallen behind, loan modification is an option to prevent foreclosure.
Myth #3: Contacting your lender is the best way to get a loan modification.
If you’re serious about obtaining a loan modification then seek help from a financial counselor. Lists of free non-profit counselors in your area are available from your local HUD office, or you may find a for-profit loan modification company in the yellow pages. If possible, find a counseling firm with qualified attorneys. Lenders are inundated with requests from desperate homeowners at this time, so you need legal representation to make sure your case gets the time and attention it deserves. A financial counselor will have your best interest in mind, not your lender’s. If you go into it just trusting your lender to give you the best possible deal, you may not get it.
Myth #4: Loan modification will hurt my credit.
It depends on the lender and the type of modification, but most loan adjustments will not damage your credit score. Modifications, like refinances, are not actually borrowing any money so they usually do not impact your credit. They may even help your credit if they enable you to start making payments again. Even if modification did hurt your credit, the impact would be far less than your alternative of defaulting and having the bank foreclose on your house.
Myth #5: If you’ve already gotten a foreclosure notice, it’s too late.
Even homeowners who have received a foreclosure notice from their lender can still modify their loans. Homeowners can request loan modification at almost any point during the foreclosure process. The key is to act quickly, because your options narrow as time goes on. Again, lenders want to avoid foreclosure at almost any cost. If they can turn a loan from a non-performing into a performing account, even after sending out a foreclosure notice, then they will probably be willing to grant modification to a qualified applicant.
Keeping educated about loan modification is important. Homeowners should know that lenders want to avoid foreclosure (even late in the game), and what makes them eligible for a modification. They should also use a qualified financial counselor to secure loan modification and take early action.
Readers might also enjoy “Rules for Writing a Hardship Letter.”
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