Loan Modification Refinance: Can’t Refinance? Then Get a Loan Modification

Can a homeowner in mortgage default refinance to stop foreclosure instead of loan modification? In most cases, absolutely! The following brief overview of what’s required to successfully pursue this alternative should give you a good general idea of which option–refinancing or loan modification–is right for you. The first factor involved in being able to refinance your home before it’s foreclosed upon is having equity in your home. This means that you must owe less money on your mortgage than the home is currently worth. In order to refinance to stop foreclosure instead of loan modification, you’ll usually need at least 10% equity in the home. If you have less than that, or don’t have any equity in your home at all, then automatically loan modification becomes your better option.

Third, lenders now requires borrowers to have reserves. In this economy how many people really have reserves? The likelihood of these people having reserves when the economy was at it’s best is probably slim. Finally, let’s not forget about the distressed area’s which is nationwide. To this day maybe 99.9% lender will not do a 100 percent financing (who can blame them?). Now, with all this in mind, what options are these homeowners left with?

The answer? Loan modification can be beneficial for homeowners when refinancing is no longer an option. With foreclosure filings increasing up over 80 percent higher than 2007, it has forced lenders to cooperate with assisting homeowners by modifying non performing mortgage loans. Lender are willing to work with homeowners a long as they feel that the loan can perform. Though, in some cases homeowner are denied for the simple reason that no matter what modification the lender has to offer; the borrower just cannot afford the home.

The first step of the loan modification is to go thru a brief interview either with your lender or a loan modification consultant. If the home owner’s case proves to be a strong candidate, then the lender will request a financial statement that will break down all the income and expenses of the home owner. Once this financial statement is completed then the homeowner will need to package this with a hardship letter, along with supporting documentation such as tax returns, pay stubs and bank statements and send to their lender. From this package the lender will then make a determination for the new loan terms which could take up to 60 days. The loan modification is becoming one of the mortgage industries most popular tools for preventing a foreclosure and creating a win-win situation for both lender and homeowner. As the typical terms will normally be more affordable for the home owner and will put them back on track and the lender gets to collect its interest payments in a timely fashion and won’t have to go through the expense of foreclosure.

By inputting the current financial situation, it will give them a general idea on the possibilities of attaining a loan modification. Be aware of organizations that collect money before taking all financial (income, expenses, assets, etc.) information and consulting you with a plan that they will try to conquer. Make sure that they take a really good look at the file, consult you and give that you a proposal before paying for their services. Again, this can be costly but highly suggested as long as you are dealing with a superior company.In conclusion, owning a home is an American dream. Homeowners do not want to lose their homes because no matter what they will have to live elsewhere. Though, with the decrease in home values and income, deterioration of credit, and strict lender guidelines it is almost impossible to refinance and put themselves in a better position. Therefore, doing a loan modification could be the best option for most people.

Learn more about Obama Mortgage Relief Plan Qualifications.