Many homeowners faced financial hardships during the recession. Loan modifications were and still are a way for homeowners to hold on to their home instead of losing it in foreclosure. If you are in the middle of a home modification or have had an approved modification you may be wondering what will happen if you want to move to a new home.
Here is what to expect when you are in a modification and searching for a new home and home loan.
The loan modification is a change from the original terms of a mortgage that resulted in the restructuring of one of these: principal curtailment, forgiveness, forbearance, payment reduction, or any other changes to terms on the original mortgage notes. Every modification is different but the most common is a reduction in a mortgage payment.
Conventional mortgage loan guidelines require that when trying to finance a new property you will need to have 12 months of payment history on the modification. So if you got a modification 12 months ago and have stayed current with every payment you are okay to apply for a loan on a new home. If you had a write-down, a principal balance forgiveness, on the mortgage in most cases you will be found ineligible for a new loan. If you only had a payment reduction then the 12 months of payments will more than likely allow you to be eligible for a new loan.
Most of the time when you get a loan modification, the lender will report it to the credit bureau and it will go on your credit record. Check your credit report to see if it was in fact reported if the lender did not report the modification this can work to your advantage. (Especially after the issues we've had with Equifax. Be even more on top of your credit history). Lenders work from your credit report to determine your financial health and reliability. - Read More on how Equifax has affected home buyers
You will need to provide a copy of your loan modification that specifically details the modification. Some borrowers will have different interpretations of what Fannie Mae and Freddie Mac consider to be a modified or restructured mortgage. This can work in your favor. If your loan was changed, but no paperwork was signed your lender may report normally to the credit bureaus and the documenting of the modification is no longer necessary and you may be able to avoid waiting the 12 months.
Most banks have the same expectations when issuing a loan after a modification, but not everyone. If you have been turned down for a loan and meet the payment history requirement you may want to get a second opinion or ask for advice from an experienced loan modification lawyer.
For more information on the getting approved if you've faced a loan modification, foreclosure or short sale in the past, give me a call.