Loan Modification Process and Ways to Stop Foreclosure

There are many homeowners who face difficulty in making loan repayments. The loan repayment process is for such type of homeowners only. The homeowners facing this situation should go for loan modification plans. These plans can help them by extending the duration of repayments i.e. can be extended up to forty years also. This is done by lowering down the interest rates and also principle forgiveness, in some cases only. This article will be helpful to the borrowers who have missed the payments and are facing financial crisis. Let us also discuss about the other alternatives to avoid the foreclosure situation.

There are several alternatives available to avoid foreclosure situation. Some of the alternatives are repayment plan, FHA loan-partial claim, mortgage modification, etc. Let us understand, what happens in repayment plans. This option is useful for those borrowers who are suffering from temporary financial crisis. Such a crisis can occur if there is a temporary decrease in the salary.

Other reasons are extra expenses due to the increase in medical bills or even some personal matters like somebody’s death in family. The repayment plans can help such people to come current on their loan repayments. These plans help them to make up the missed payments by paying some additional amount along with the regular payment. Thus this can cover the past due payments. Finally, the borrower will be able to make up all the missed payments and hence can avoid foreclosure.

Now, let us understand what happens in FHA loan. This type of loan is issued by the FHA insurance fund. Through this loan the borrower can pay the default amount and bring his loan up-to-date. However, in this type of loan the borrower has to sign a promissory note for the defaulted amount and the payments must be a minimum of four months in arrears. One thing is that there will be no payments or interest due on this loan until the house is sold or refinanced. Thus one can use this alternative to avoid foreclosure.

The borrower can also go for mortgage modification. The borrowers who are seriously facing financial crisis due health problems, lose of job, personal matters, etc. can opt for this option. In order to qualify for this alternative the borrower has to provide the lending institution the complete documentation in support of his request.

Thus, he can opt for loan modification by giving complete details. Along with all the necessary documentations the borrower also has to submit an application to the bank. The bank or the lending institution will verify all these details before giving any suggestions to workout. The information that the bank expects from the borrower are bank statements, ways to tax returns, financial statements, hardship letter which describes the reasons that caused financial crisis, etc. Thus, one should fill the form completely and accurately while applying for mortgage loan modification.

If the borrower gets approval for modification then he may be given options like longer duration for repayments, principle forgiveness, lowered interest rates, etc. However, this process is very time consuming.

Original:  Loan Modification Process and Ways to Stop Foreclosure