Loan Modification ” Another Kind of Refinance?
The term Loan Modification means changing or modifying the terms of an existing loan. It is not a Refinance or Refi per se which is a New Loan usually done to pull cash out of the equity in a house or to get a better interest rate than the existing loan but its effects are similar.
Loan modification deals with the current loan where the home owner and lender hash out modified terms to make it mutually workable and beneficial. Loan modification can solve a problem for both the home owner and lender. Foreclosure costs the lender money. Demonstrating to the lender that you want to save your home and help to work out some type of plan that will in turn resolve the dangers of foreclosure he will in turn be willing to negotiate. Loan modification allows homeowners and lenders to change the terms of a loan in order to help the borrower stay in the home and avoid foreclosure. It is a process that must be understood and thought out completely and thoroughly.
The sad reality is that there are many home owners who are facing hardship with their own mortgages and are contemplating foreclosure or looking for alternatives. The key to being accepted by the lender and gain access to this saving grace is to prove without a doubt that you are suffering from some type of hardship. A hardship is what can help you to achieve a loan modification and in turn save your home from plummeting into foreclosure. Home loan modifications are established for homeowners just like you who have lost your job, had a decrease in your income or are suffering from a hardship that may be keeping you from work.
Loan modification programs are very popular in today’s economy. Generally this is in the form of a lower interest rate with a fixed loan program. Since many of the programs do vary in how they work, you should contact your lender and advise them of your hardship and get more information. Each mortgage lender or servicer will have different loan modification programs and processes. As mentioned before, loan modification programs are just becoming mainstream and therefore there is little standardization. Make sure that you take the time to educate yourself so you can take advantage of the billions of dollars in homeowner assistance programs now being offered.
Loan modifications used to be reserved for borrowers whose mortgages became delinquent because of job losses, divorce proceedings, or illness, but today they are also open to those individuals who are suffering in the aftermath of adjustable rate mortgages skyrocketing and placing the monthly payment beyond the means of the borrower. The loan representative can use several methods to accomplish the lowering of the payment such as reduce the interest rate to as low as 2%, extend the terms of the loan (possibly up to 40 years), forebear loan principal at no interest. Forbearance is a negotiation process with your mortgage lender to work out the delinquent payments you have not paid due to your financial hardship. The most common loan modifications are lowering the interest rate, reducing the principal balance, ‘fixing’ adjustable interest rates, pardoning of payment defaults & fees, or any combination of the above. It is unknown how long the window of time of government assistance programs and loan modification programs will last.
A person could, in the long term final analysis pull cash out of the house, however it would not come in the form of a lump sum but in the payment plan. A person may recover from his hardship and earn a higher income again. His expenses would still be lower. This net difference would be the payment plan and if managed correctly could present new opportunities in the future by the existence of new capital to either pay down the mortgage or invest in ideas for more income or for whatever else one might use an equity draw.
Due to these government assistance programs, the time has never been better for property owners to take the initiative and apply to have their loans be modified towards better terms and a lower interest rate. It is exalted as the principle solution to prevent foreclosure rates from achieving alarming heights. A loan modification will decrease your monthly payments, lower your interest rate, avoid foreclosure, save your home and in the long run possibly put cash in your pocket.
Are Loan Modifications Better Than Short Sales?
Consumers need to be aware that there is a big difference between getting a loan modification and going through a short sale. Both of these methods may help a homeowner avoid foreclosure. They are taken care of through assessment and approval in the loss mitigation department of your lender. However, they will not have the same result with respect to your financial situation.
A loan modification is where your bank agrees to modify one or more of the conditions on your original loan. The more common types of loan modification are reduction of monthly payments, lowered interest rates or even forgiveness of late fees and penalty charges that were added to the balance of your loan.
If you are looking into a short sale, you will actually sell your house. You will get your bank to agree to a sales price lower then what is owed on the mortgage. Once the the sale is completed, the bank will forgive the rest of the money owed.
Three benefits of loan modifications are:
1. The foreclosure proceedings will be stopped right away. You will be able to stay in your own home and not have to uproot your family. 2. By reducing your monthly payments you are giving yourself the chance to get back on your feet financially. 3. You are going to be able to control the damage done to your credit report.
Three drawbacks of loan modifications:
1. You could get your mortgage payments and fees reduced, however, it might not be good enough to help you get back on track. 2. If you miss a payment in the new agreement you will find yourself facing foreclosure again. 3. You may only get your monthly payments reduced for a short period of time. After that period of time is over your payments could go right back up to where they were. If you are not prepared you will be facing financial problems.
Advantages of doing a short sale:
1. A short sale will allow you to get out of debt rapidly. You will not have to deal with monthly mortgage payments and you can have the chance to get back on your feet financially. 2. If your house is worth much less than you owe to your lender, a short sale is probably the only way you can sell your house and get out from under your debt. 3. Most lenders will not come after you for any loss they experience from a short sale. Your debt gets eliminated completely.
Three downsides of short sales:
1. There is a possibility that you bank will report their loss to the IRS. This could create phantom income for your and mean that you may have to pay income taxes on their write-off. 2. As you sell your home with a short sale, you will need to find someplace new to live. This could prove to be difficult, as many landlords will not look kindly on a record of past due payments. 3. Chances for you getting a new mortgage anytime soon are very slim. Many lenders do not have much faith in consumers that had outstanding debt forgiven.
There are pros and cons to both methods of stopping possible foreclosure. If you choose to go with a loan modification you will be able to stay in your home and repay your debt over time. Most homeowners prefer this solution rather than wiping out your debt with a short sale and starting from scratch.
Getting Started with Foreclosure Investing
If you are considering a great deal in the housing market, or if you’re thinking of buying the house of your dreams and have a small budget, foreclosure homes may be the best bet for you.
While foreclosures are devastating to some, there are those who benefit greatly from such financial situations. Buying foreclosure homes have already proven to be a great way to earn quite a bit of money for many foreclosure investors.
Foreclosure properties can be located in many different places. Banks have foreclosure listings, as do government agencies, and of course there are other home lenders who have foreclosure properties. You will have many sources to find these properties, as these lists are frequently updated with new properties.
You can check out several online sites for listings of these foreclosed homes. These listings could also be printed and posted in the offices of the financial institutions or published and distributed to the public.
You can send letters of intention to buy or participate in foreclosure auctions to be able to purchase any one of the homes listed as foreclosed.
The process by which you can acquire foreclosed homes would differ from one state to another. There are also differences by which properties seized by the government, as well as those seized by banking institutions, are handled. It would save you some amount of trouble or potential hassle to get yourself acquainted with these processes before you start to dip into the business of foreclosure investing.
In today’s market there are so many foreclosed properties, and the sales prices are lower than they ever have been before. Now is definitely a good time to invest in foreclosed property.
If you take care to handle each step properly, investing in foreclosures is the perfect way to maximize the returns on your extra cash. Instead of watching your money disappear with inflation, you will make a good return on your investment when you purchase a foreclosed property.
Requesting for a Loan Modification if Self-Employed
Loan modification is starting to be a very common way for home owners to stay in their houses by renegotiating the terms of the loan with you bank. Nevertheless, prior to getting the approval, you need to show that you can pay the modified mortgage with your current income.
If you are self-employed, it could be difficult to demonstrate your income when presenting it to the lender. This may be so for many different circumstances. Nevertheless, lenders must have a kind of proof that you will be able to pay back the loan.
In order to solve this problem, you could request your accountant about a financial statement. The financial statement should cover the last six months. It is fundamental that the financial statement is filled out by your accountant because it will bring credibility to the statement.
After you get the final number from your accountant, you consider the number as a regular paycheck. You should use that number to calculate the debt-to-income ratio which is the critical point of consideration to decide if the loan modification is going to be approved.
By using this number, you disregard the weight of employees, leases, etc. Only the basic amount showing your present earnings is shown in the financial statement.
After you have completed this step, submit this value to the bank. The value will not be audited or reviewed. The bank can use it as documentation as long as it is given by an accountant.
This is usually all the proof banks need. Lenders will take this document as proof of income when the individual is self-employed. Because lenders will take this statement as demonstration of income, they must make sure that this document comes from an accountant.
Keep in mind that lenders expect to obtain some type of demonstration of income prior to offering the loan modification. By giving the lender with the financial document prepared by your certified accountant, banks will get the proof they require to give you the mortgage modification.
Recession made Millionaires; can they be someones hero? Foreclosure investing the next big thing!
There are several people saying There will be more millionaires made during a recession than ever before. So why during the worst time in the economy are more millionaires made? Im going to reveal the secret!
So let me first ask the question thats on most peoples minds. What got us into this mess in the first place? While I cant answer that question with 100% certainty, I can say that I believe it is because the main stream way of thinking will not try to think outside of the box. Millionaires made during this recession will be out of the box thinkers.
Some of the best performing businesses today are businesses that where founded by out of the box thinkers. Businesses like Google, Apple, Twitter, and the discount retailer Wal-Mart. The founders of these businesses knew things had to be done different.
So I bet youre thinking Thats great but how do I become a millionaire in these times or I dont have any ideas like those. Let me ask you this, what is the largest market in todays economy? If you answered foreclosures you are right.
So what kind of business can you start in the current market? With the large foreclosure market ,if you can find a way to invest and help people at the same time, you have a millionaire dollar idea. There is a great opportunity out there for out of the box thinkers!
So how can someone help the economy and the foreclosure market? People who are about to go into foreclosure or already have are looking for help. They are stuck with a house they cant afford and need to sell their house as fast as they can. So they can then find a house they can afford.
So do you see the opportunity to help your neighbors and become a recession made millionaire. You get to help someone save their credit and improve the economy in the process. Great way to think out of any boxes! The less foreclosures out there the better the markets will be and the more real estate sales the better.
If someone losses their house to the bank you can image how hard that is. Losing that credit score you worked so hard for, or having to tell your family the bank is taking the house. Being able to help someone in these hard times would be very rewarding!
I truly believe that there will be more millionaires made in todays recession then any other time in history. Everyone needs to do their part to help people who are in trouble and at the same time helping themselves into the millionaire club.
You can become one of these recession made millionaires who think outside the box. All you need to do is find out how to help these people in need. How to purchase these Pre-foreclosures before the banks take them.
