If you are one of the six million homeowners that is currently behind on your mortgage, then you have probably researched a mortgage loan modification or another refinance. Many of you either purchased or refinanced our property in the last four years during the housing boom. And most of you probably cashed out most of the equity in your home as well. Now, with the economy failing, unemployment rising, salary freezes, and interest rates adjusting ... What are your options?
Whether you are considering a Loan Modification or a Refinance, you need to determine the following:
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Know your budget. How much can you really afford to pay? If you are uncertain, then it is probably too much. The mortgage industry has now taken on a 'Big Brother' role when it comes to your mortgage loan, and they have implemented guidelines based on what they feel you can afford.
How long are you planning on staying in your home? This will help you decide what programs are best suitable for you and your family.
REFINANCING OPTIONS
If you have recently tried to refinance your mortgage loan, it probably seems like the banks are asking for excessive amounts of paperwork...at least a lot more than they did the last time you refinanced. Lending restrictions have tightened, and the banks not only consider your credit score, but they also verify your ability to repay the loan in a timely manner by collecting all or your income documentation. You will be hard pressed to find anymore "stated income" or "no doc" mortgage loans available.
Always consider paying off excess consumer debt like cars, credit cards, and loans when possible because lenders will consider this as a benefit and are more likely to make necessary exceptions and approve your loan in a timely manner. In addition, you most likely will not find rates on any loans lower than the current mortgage interest rates.
Conforming Loan- Fannie Mae/Freddie Mac backed loan that has a little more flexibility than an FHA loan but still usually requires all income documentation. If you have been more than 30 days past due in the last 12 months, you may not qualify for this loan.
FHA Loan- Government backed loan that has loan amount restrictions and requires lots of additional documentation. This loan is great for those of you that may have a lower credit score due to past credit issues, but have always found a way to pay your bills in a fairly timely manner.
Hard Money Loan- These are usually back by private investors and have very high interest rates and require at least 30% down payment or equity position.
Portfolio Loan- This is a bank backed loan that usually requires a high credit score. These loans are good for those with very high loan amounts and still want interest only or very low adjustable rates.
LOAN MODIFICATION
Originally all mortgage loan modifications were reviewed on a case by case basis by the lender, and sometimes the final decisions were not very consistent. Also, most banks did not accept applications unless the homeowner was 60 days behind on their mortgage payment. President Obama's new plan has given loan modifications strict underwriting guidelines that are very easy to follow.
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