Mortgage Loan Modifications or Refinancing? Two Options For Saving Your Home

When hard times hit, they usually hit hard

When hard times hit, they usually hit hard. Cash become difficult to raise, and expenses seem to keep soaring. And you find yourself struggling to meet the payments due and fall so far behind that default notices outnumber junk mail. When these things happen, you may be faced with the idea of being forced to sell your home in order to free up some of your funds. But this need not be the case because now, there are more options open so you can keep your property, like mortgage loan modification or refinancing.

Refinancing is primarily making another loan to cover the first one, only this time, the payment scheme becomes more manageable because of either a lower rate or more favorable terms or both. You can apply for this loan from an institution of your choice and you can scout for the best option. However, since this is technically a new loan, approval really depends on your credit rating, your ability to pay and your home equity, among other matters that the creditor would consider before approval.

Mortgage loan modification, on the other hand, is making changes on the terms of your existing loan. You deal with the same entity that holds your mortgage and, together, you work out a way to make payments manageable, such as making the amortization term longer so you pay less monthly. Lenders, in these times, are more inclined to agree on a mortgage loan modification where a true hardship exists because they would lose more money by foreclosing rather than adjusting the terms.

Although lenders can have slightly different rules, they typically require the following documents when they review your application:

A letter stating and detailing your financial difficulties. This is commonly referred to as the "hardship letter."

A report detailing your financial status. This includes your assets, liabilities, income and expenses.

Your most recent mortgage coupon or mortgage statement.

Documentation of your income, such as tax returns for the past two years, bank statements for the past three months, etc.

Other documents that the lender might deem necessary for evaluation.

Although one cannot truly assure that your application will be approved, you can make an initial evaluation of your situation based on the following:

There is a big change in your financial situation, and you can back it up with documentation.

You are 90 days delinquent.

The property is your primary residence and you have documents to prove it (letters or bills)

You had not filed for bankruptcy.

You do not deliberately miss out on payments just so you can apply for a loan modification.

While mortgage loan modification or refinancing are both available options for a financially strapped homeowner, overall, it would be much more beneficial to apply for a mortgage loan modification as this is practically being given a second chance by the same entity that initially gave you the loan. As it is with most relationships, it is sometimes better to stick with the institution that you already know than venture into untested waters.

Mortgage Loan Modifications or Refinancing? Two Options For Saving Your Home

By: Aidan Mosteller

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