If you are unable to afford the payments on your home loan and are concerned about your and your family’s future and what will become of your possessions, you are probably at a loss as to what to do.
You may have heard people mention loan modifications before. Is this something you can do in order to save your home?
How Hard Is It To Qualify?
The reality is that very few people in the grand scheme of things will qualify for loan modifications—but you can’t assume that one of those people won’t be you without looking into the possibilities. It can be well worth it. Before you decide to go into foreclosure or short sell your home, you should try to save it.
You may be surprised; plenty of people who would qualify for loan modifications pass them up every year simply by giving up too early.
Different Types Available – MHA
What are the loan modification programs you should check into? There are various programs available, all under Making Home Affordable (MHA), a federal initiative started in 2009.
Programs under MHA include the Home Affordable Modification Program (HAMP), the Home Affordable Refinance Program (HARP), the Home Affordable Unemployment Program (HAUP), and the Home Affordable Foreclosures Alternative (HAFA) program.
Homeowners who qualify for HAMP may also be able to get into the Second Lien Modification Program (2MP).
What They Base Their Judgement On
The program to look into depends on your circumstances. The first question you should examine is whether you have fallen behind on your payments or will in the near future, or whether you are simply struggling to make them and pay your other bills.
If you are struggling and this is causing you hardship but you don’t expect to fall behind, you should try to qualify for the Home Affordable Refinance Program.
If you are behind or will be soon, try to get into the Home Affordable Modification Program. If you do get into HAMP and your loan is modified, you may have a chance to get into the Second Lien Modification Program.
If You Are Unemployed
If the reason that you are struggling with your loan is due to unemployment, you might be able to benefit from the Home Affordable Unemployment Program which was specifically created to help people who have been laid off in the recession and are having trouble paying their home loans as a result.
Since this program is for this specific case, it’s what you should check into first if yours stems from unemployment.
All of these loan modification programs will involve you submitting forms (including a hardship letter) to your lender and finding out if they participate. Lenders aren’t required to participate in most programs but there are usually incentives in place for them to cooperate.
What If They Don’t Accept Your Application?
Unfortunately in spite of this many lenders still refuse to help struggling homeowners; there are also many specific qualification guidelines you’ll need to meet to be eligible for the programs. If you need assistance determining your eligibility you can talk to HUD or the FHA or you can even get legal counsel.
What do you do if you cannot qualify for HAMP, HARP or HAUP? There is one last program in place called HAFA, which many people mistake as a loan modification program.
HAFA is not a loan modification program though, it is simply a last resort for people who fail to get loan modifications through the other three programs.
It should be the very last thing you consider—but it is best to consider it before you stop making payments on your house.
Don’t Make This Mistake
A lot of people make the mistake of defaulting on their loans before investigating HAFA, which can destroy credit. HAFA includes guidelines to help streamline the process of short sales or deeds in lieu of foreclosure and can help homeowners to conduct either with their lender.
If one of the reasons you would prefer a short sale over a foreclosure is to protect your credit, you will lose that particular benefit if you default on your loan.
The main reason to consider a short sale or a deed in lieu though is not credit, but rather future home buying plans.
If you have any interest in buying a home in the next seven years, are unable to get a loan modification, and need to choose between foreclosure and a short sale, choose the short sale.
If however you have no plans to do so, you may actually save more money by doing a strategic default and letting the bank foreclose on you.
Bankruptcy Is Also An Option
Don’t forget you can also choose bankruptcy—this isn’t always as bad an option as you might think, but the consequences depend on what state you are in and what type of bankruptcy you choose to file.
Senior Citizens
Senior citizens may qualify for a reverse mortgage for instance if they own equity in their homes. This means liquidating the equity in the home and turning it into cash which can then be used to pay off the mortgage. Other ways of extracting equity from the home include home equity loans and home equity lines of credit.
You don’t have to necessarily be a senior citizen in order to get a home equity loan or line of credit, which can open up that option to a lot more homeowners. You should check into these options before looking into HAFA if you own significant equity in your home.
Loan modifications are hard to get but can literally save your home if you are able to qualify, which can be enormously beneficial to you and your family. So don’t lose hope and give up your home until you’ve tried every alternative. Good luck getting a loan modification!
