We contribute to other blogs and one national blog that we contribute to is Zillow.com. Recently I wrote a piece titled “ Loan Modification – What to expect if you are not currently late” and a reader who identified himself as “CK” left some really, really good advice as a comment, so I thought I would share it here as well:
Loan Modification: What to expect if you are not late on your payments
If you are current on your mortgage payment then consider refinancing with your current lender. You may qualify for a streamlined refinance (appraisal report not required). Right now is a great time to take advantage of the low interest rates, which may help reduce your monthly payment.
If you are behind on your mortgage payment and have an ability to pay then complete the financial information package your lender mailed to you. Usually you will get this package when you are behind 2 or 3 payments. Just like a refinance, you will need to qualify for a loan modification.
Here are some things which will cause you to be disqualified for a loan modification. Not a legitimate involuntary to pay (virtue does count), no ability to pay, uncooperative, and misrepresentation on origination or during loan modification process.
Realistic expectations if you qualify for loan modification. Lender will usually take your past due payments and other costs and roll them into your principal balance. To keep your payment from increasing b/c now you have have higher loan amount, lender will usually extend your term out, up to 40 years (keep in mind you are paying more interest over the life of the loan). In some instances interest may be lowered to either the current market rate or note rate; usually the lower of the two. Also keep in mind if you had an interest only loan, you now are paying principal and interest (fully amortizing loan) and mandatory impound account (taxes and insurance).
If you have a ton of unsecured debt (credit card, installment, etc) then its best to negotiate with them before you begin the loan modification process. Your bank or servicing is not willing to free up cash flow to pay unsecured debt. You will need to develop a good budget; there are many approved HUD counselors that will help you set up a budget for free (800-HOPE-NOW).
I hope this helps you and your family get back on track in these challenging times.