Loan Modification verses Repayment Plan
Most people find that the process for the Repayment plan goes faster than the Loan modification. The key is to understand the difference and take control of what is the better fit for you.
Your lender’s job is to get whatever is owed to them. They won’t explain the options nor will they suggest anything to benefit you because they are collecting money for the investor. If you have fallen behind on your payments, then you have three basic options:
Repayment
A repayment plan is just that. The lender will add your past due into future current payments. This includes any past interest or filing fees assuming they filed for foreclosure with an attorney on your property. This will make your payments higher and the probability of you falling behind again is greater. Now you are paying an additional $100-$500 over a period of time to catch up. Nothing changes, your interest rate remains the same. The benefit for this plan is not for you but for your lender.
What would trigger a repayment plan?
Example: Sarah purchased her house 3 years ago, she lost her job 6 months ago and fell behind on her payments. Sarah has been trying to work with her lender but the lender could not help her because unemployment is not sustainable income. Sarah just recently found a job making $800 more than her original income. Excited that she would qualify for a modification she called her lender. Her lender took a financial statement and found that she made an extra $800. Sarah was denied the modification but qualified for the repayment plan. Why did this happen? When you show over $800 in extra income, you servicer will place you in the repayment plan.
Loan Modification
A loan modification takes your existing loan and changes it. You can negotiate, and any past due amount is put on the back end of the loan. You can request that any late charges be expunged, and you can request they reduce you interest rate. Most are being reduced to as low as 5%. In most cases your mortgage drops considerably lower and makes it more affordable to sustain.
What would trigger a Loan Modification?
Example: Sarah purchased her house 3 years ago; she lost her job 6 months ago and fell behind on her payments. Sarah has been trying to work with her lender but the lender could not help her because unemployment is not sustainable income. Sarah found a new job. She made exactly what she made before. She called her lender and completed a financial statement. When Sarah completed her financial statement she only had $300 left after she paid the minimums on all of her bills. Sarah qualified for the loan modification. Why did this happen? Sarah was able to pay her bills but only had $300 extra, not enough to qualify into a repayment plan. Rule of thumb you should not exceed $300 of your expenses.
Short Sale
The third option of short sale is up to the customer. Usually the amount owed on your home is more than the current market value (CMV) of your home and it is up to the bank to settle for a lesser amount for the sale of the property.
If you feel you cannot qualify for either plans or you just want to get out of the situation without having a foreclosure on your credit this is a great option. Most times when you agree to this the bank will opt to sell the property themselves. Each lender has their own criteria.
