The recent recession brought a lot of financial problems to a lot of individuals, including homeowners who have existing loans to pay. Banks offered many an option for loan modification, to save homeowners at risk of delinquency, or those struggling with changes to income or losing their home equity.
This article gives information to those who are looking to move and get a new mortgage, but already have existing loan modifications:
Explaining Loan Modification
Basically anything that changed what was originally agreed upon in an existing mortgage and that restructured a part of the exisiting loan, most modifications reducing the amount of mortgage payments to be made.
When to Do What
The timing is also crucial when doing a loan modification: ordinary loan guidelines state that from the time of modification, homeowners should have 2 years of payment history on the property where the homeowner wants to apply for a new mortgage on; or 1 year of payment history to finance a new property. However, those who have a history of loan forgiveness or a mortgage write-down are then not eligible anymore for the usual mortgage loan. If the payment was only reduced and not forgiven, and the homeowner has had either the 1 or 2 year rating, then financing should be available regardless of the financial situation of the applicant.
Check the Homeowner’s Credit Report
Banks and other lenders review all applications based on a person’s credit report. Therefore, what was reported on the loan modification also plays a huge role: normally this is reported to be a “restructured” or a “modified mortgage” on the homeowner’s credit report. Should the second be the case, but this was not reflected on the credit report, this is an advantage for the homeowner. In any case, make sure to show a detailed copy of the modifications made on the loan. This is because other lenders define restructured or modified mortgages differently than for example, how Fannie Mae and Freddie Mac would interpret it to be. Therefore, the homeowner has in this case some room for leeway. After a restructuring with a lender, the homeowner has to sign new paperwork with all the terms and conditions of the restructured loan. Should there be no new signing of paperwork required, but a change in the loan took place, it will then still be reported to the credit bureau, but documenting what was modified on the loan is not required and the homeowner also does not have to wait any longer.
Otherwise, the waiting times should not vary because banks that bundle and sell these loans follow the same guidelines. Bigger banks may need another round of inspections to avoid loans that are high risk.
Homeowners who have been rejected due to existing loan modifications should ask for another opinion. Approach mortgage banks where availing a loan are more feasible, for example those that work closely with Fannie Mae and Freddie Mac.
The hard times should not mean the end of plans to modify existing loans and acquiring new property. By keeping with the monthly payments, many options exist for homeowners who truly deserve the loan modification.