Life sometimes has a way of surprising us with unexpected challenges. Maybe you’ve been laid off from work or lost a loved one. Perhaps caring for additional family members has put a strain on your finances.
If a life change has made it difficult to make your mortgage payment, don’t bear the burden in silence. Talk to your mortgage servicer. You have options. Quicken Loans and any mortgage servicer wants to do everything they can to help you stay in your home or at least get you into the best situation possible.
We’ll take you through an option to work with your lender and servicer to modify your mortgage payment to stay in your home and options that let you get out from under it if you no longer have the budget. This can be done with less negative impact than a foreclosure.
In order to decide whether you have the resources to handle a modification, you first need to know how a modification works. This used to be complicated and once depended on which mortgage investor owned your loan. Now things have been greatly simplified, making the process better for both servicers and their clients.
Examining the Standard Modification
If a challenge has caused you to fall a couple of months behind on your mortgage payment, one option your servicer will take a look at to help you get back on track is a modification.
The purpose of a modification is to lower your payment to the point where you can afford it with your current financial situation. The standard modification accomplishes this in a couple of steps.
You’re given a special standardized interest rate for modification that’s designed to tie closely with current market rates. No matter which mortgage investor you use, they take their interest rate cue from an index available from Freddie Mac.
For some of you, this in and of itself may lower your payment by lowering your mortgage rate. If that alone doesn’t do it, they also have the ability to extend your mortgage term to 40 years, instead of the standard 30 years. By re-amortizing your payments over a more extended period, your payments are substantially lowered.
Some homeowners are not only having trouble with their monthly payment, but they may actually owe more on their home than it’s worth. If that’s the case, one option available to your servicer is to set aside some of the excess principal in a process called forbearance. No interest is charged on the principal that’s set aside and the payment on this remaining principal is due when the rest of the loan is paid off.
A modification is a great solution if you have the budget and want to stay in your home. If, for whatever reason, you can’t make a modification work, then your servicer will take a look at working with you to sell the house. There are a couple of options for this.
Options for a Managed Sale
If you can’t make a modification work with your budget, you do have a couple of options that won’t hurt as much as a foreclosure from a credit perspective. Let’s go over them.
If you know you’re struggling to make your mortgage payment and don’t want to do a modification, a short sale can help you leave your home gracefully with a smaller credit impact than you would see in a foreclosure. This may be the preferred option for clients who have some equity in their home.
In a short sale, your lender agrees to take less than the full payoff amount in order to find a buyer for the property. This is particularly helpful if you’re in an area where your home might appraise for less than what you owe due to property values not fully recovering.
Deed in Lieu
If you have very little equity in your home and just want the option to leave your home to the lender without having a foreclosure on your record, you can do so with a deed in lieu.
By working with a lender on your deed in lieu, you may be able to obtain some funds to assist in relocating to another living arrangement.
If you’re falling behind or struggling to make your mortgage payment, please contact your mortgage servicer. They can work through your situation and help you out. Fannie Mae has great general information on avoiding foreclosure as well. If you’re a Quicken Loans client, you can reach out to us at (800) 863-4332. We can work through this with you.
If you’re looking for advice on how to be successful in your modification, check out these tips. If you have any questions, will be happy to answer them in the comments below.
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