Do You Have To Pay Back A Loan Modification?

Falling behind in mortgage payments can result in the loss of your home; however, if you are struggling to make your mortgage payments due to unforeseen circumstances, then there are certain options you can take in order to prevent you from losing your home and avoid foreclosure.

Loan modifications can help you to get back on track with your mortgage payments so you don’t have to lose your home. In this article, we’ll be taking you through everything you need to know about loan modifications and how you can qualify for one.

Do You Have To Pay Back A Loan Modification?
What Are Loan Modifications?

Before we get into whether you can qualify for a loan modification, it’s important to know what a loan modification actually is. This is because loan modifications are completely different from refinancing your current mortgage.

Where refinancing your current mortgage means that you are replacing your mortgage with an entirely new mortgage, a loan modification is altering the terms of your current mortgage without replacing it. This means that you are still dealing with the original mortgage rather than replacing it altogether.

How To Qualify For A Loan Modification

Qualifying for a loan modification is something that you need to make sure and bear in mind that you are not guaranteed to qualify for a loan modification.

However, the basic criteria are that you need to be facing a huge drop in payment thus becoming delinquent, or have a high probability that you will become delinquent after a short period of time. This can be due to a variety of unexpected factors such as losing a job, illness, or disability to name a few.

Showing that you were able to pay your mortgage previous to the sudden circumstances and then how your repayments have suffered following the issue that has affected the terms and conditions of your loans.

Loan Modification Programs

Once you have fulfilled the criteria provided above that state that you should qualify for a loan modification, it is important to learn about the different types of loan modification programs available as these will be tailored depending on your needs and circumstances.

This is because certain amendments can be temporary and others are permanent. Your bank or lending financial institution will be able to point you in the right direction and give you their recommendations as to which program is going to give you the best chance of getting back on your feet.

One such program used to be the Home Affordable Modification Program but this was expired in 2016. However, this doesn’t mean that there are no other alternatives. On October 1st, 2017, the Flex Modification program opened which helps to prevent foreclosure.

Other examples of expired programs include the Home Affordable Refinance Program (also known as HARP) which helped homeowners to refinance certain parts of their mortgage agreement which helps to make their repayments more affordable.

Replacing this program is the High Loan-to-Value Refinance Option and the Enhanced Relief Refinance programs which opened in 2019.

Getting A Loan Modification

Getting a loan modification to your mortgage can take time but it is important to make sure that you start the process as early as possible in order to get yourself out of your financial issues sooner rather than later.

The best place to start is by contacting your current lender who can help provide you with a variety of options and program recommendations that are tailored to your needs. Make sure that you check your emails regularly as well as answering any calls and questions that your lender may have will also work well in your favor.

The process of getting a loan modification can differ depending on your lender which in turn may change how much proof and documentation you need. However, if you are denied by your lender then you can go to your mortgage servicer and apply for a loan modification with them.

However, bear in mind that their terms and conditions may result in you paying more money back than what your lender may have laid out.

Another great option to keep in mind is applying with a HUD-approved housing counselor who can provide you with free advice and recommendations so you can understand what you are applying for specifically.

What You Need To Know Before Going Through Your Loan Modification

Once you have been accepted for a loan modification, there are certain things you need to bear in mind before you go through with the modification itself.

The most important thing to remember is that having a loan modification is that it can negatively affect your credit score as it may be added to your credit report.

Compared to having your home foreclosed, a lower credit score isn’t necessarily the worst scenario but it’s important to note that having a lower credit score can affect your ability to get another loan further down the line should you need it.

This is more likely to happen if the modification is permanent. If the modification is temporary, then your credit score is likely to increase once you have repaid the loan difference between the original amount and the altered amount.

For those with a permanent modification, lenders may require you to provide proof of numerous payments made on time before approving any additional loans. This can range from 12 to 24 payments made on time in a row to ensure that you are on top of your payments.

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