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If you’re “underwater” (you owe more on your mortgage that your home is now worth), you may be wondering if it's possible to get it modified. The simple answer is that "yes" you could get it modified but the process itself may not be very simple.
If you’ve stopped making payments
There are two possibilities here. The first is that you’ve stopped making payments on your home loan. The second is that you have continued making payments but would still like to save money through a refi. If you stopped making payments, your bank might be willing to modify your mortgage. This is because it basically has four options. It can attempt to collect the money you owe (through garnishing your wages), try to repossess your house, accept the loss or watch you file for a chapter 7 bankruptcy in which case it would receive practically nothing.
Call your mortgage holder
The first thing you should do is call your lender to see if it would be willing to talk loan modification. Some will choose to work with you because it's cheaper and easier for them to do this than to foreclose on your house. When you talk to your lender, you will need to be very honest in explaining why you can’t make your payments. Ask what options might be available. If you can convince the company to see things your way, you might qualify for a modification. Banks have different conditions for approving a1 housing loan modification request so it’s impossible to know if you are eligible. The only way you can find out is to ask.
What type of mortgage modifications are there?
If your bank agrees to modify your mortgage, there are several different types of modifications available. It could make your payments more affordable by changing your loan’s terms. In some cases, these changes will be temporary and in others permanent. Whichever your bank offers, the result will be that you will have a payment that's easier for you to manage while you get back on your feet. However, you could end up paying a good deal more interest over the years if you’re making lower monthly payments.
If you’ve been making your payments
There is a way to save money on your home loan if you're underwater through a federal program called HARP or the Home Affordable Refinance Plan. However, Fannie Mae or Freddie Mac must have underwritten or guaranteed your mortgage to qualify for this loan. You must have obtained your loan before January 1, 2009. And your servicer (the company you send your payment to) must participate in HARP.
The benefits of a HARP
There are two big benefits to getting a HARP refinance. First, you'll have a mortgage that's in line with the true value of your home. Second, you'll have a much better interest rate. If you have a housing loan at, say, 5% or 6%, HARP refinance could reduce that to something around 3.5%, which would cut your payments by several hundred dollars a month.
How to determine if you're eligible
You can learn if your home loan is guaranteed or owned by Freddie Mae or Freddie Mac by using Fannie Mae’s Loan Lookup Tools or those of Freddie Mac. Second, you should contact your home loan servicer and ask about HARP. You could also contact another servicer that is approved by Freddie Mac or Fannie Mae. Finally, you should compare costs and rates with other companies to make sure you'll get the best refinancing terms.
If you have questions
To get answers to any questions about HARP, contact a housing counselor that is HUD-approved. Your counselor will explain your options, help you create a plan tailored to your specific situation and prepare your application. There is a statistic showing that people who work with these housing experts do better in getting a new mortgage than those who don’t.