Top 7 Myths About Loan Modifications

A number of misunderstandings exist among people when it comes to loan modification mitigation. Let us bust a few of those myths.

To be eligible for loan modifications, you must be lagging on your mortgage payments.

Before 2009, there was a solid basis for this belief as most banks would not accept that an individual was going through tough financial times unless the individual was far behind on making his payments. But after the passing of Making Home Affordable plan by the U.S. government, the process is helping people who are current with their payments but are not financially sound.

The lender is obliged to modify your loan if you are eligible as per the government criteria.

Under no circumstance a mortgage company or lender is obliged to modify a person’s loans. The government just lists down some criteria for an individual to be considered for the loan modification options. The final decision for approval of an application completely depends on the lender.

For a loan modification, I need a loan backed by FannieMae or Freddiemac.

The government has two types of loan programs. Some of these target loan modifications while others target refinancing. If an individual is going for one of the loan modification programs, their loan need not be backed by any corporate lenders. However, if one is applying for a refinance program then the above requirement applies. See a loan modification expert to know which program is best suited to you.

If a loan modification is approved, it will reduce the principal amount.

When a loan is modified, the lender will primarily make changes to reduce the monthly mortgage payment. This reduction may be for a limited time or it may require you to deposit a lump sum payment at some point in the future. Reduction of the principal amount is extremely rare and should not be expected when applying for the process.

Approval of a loan modification depends solely on the income of the applicant.

When processing an applicant’s lone, the loan modification inspectorwill take into consideration multiple factors, such as the total income of the household including that of the spouse and children if working. Besides other assets, the current value of the property and the market scenario will also be taken into consideration.

If I apply for a loan modification or bankruptcy, the foreclosure of my home may be averted.

Any application for a loan modification doesn’t necessarily affect foreclosure sale. Act as soon as you receive notice of foreclosure. Get professional help to find out your options. Loan modification is a long process and will take time.

It is the duty of banks to help an applicant.

Banks are business institutions after all and to be in business, they must cut their losses. For every application the bank receives, both the individual’s financial condition and the banks losses are taken into consideration while processing an application. The final decision is up to the bank or the mortgage company.