Mortgage loan modification is a process by which your lender agrees to change the existing terms and conditions of your mortgage loan. More and more people are opting for this option so that they can repay their loan in a comfortable manner. You need to qualify for the same. Let us take an instance to understand how mortgage loan modification works.
Antony Hare residing in his own house had applied for a mortgage loan with ARM or adjustable-rate mortgage. He continued making payments for the first few years. A sudden medical emergency depleted him of his savings. He started missing his mortgage payments. Antony took out the mortgage loan prior to January 1, 2009. After calculating it was found out that his house payments were more than 31% of his gross monthly income. However, Antony’s loan was within limits set by Fannie Mae. When Antony took out the mortgage loan, he had agreed upon ARM. Since Antony had opted for ARM, he had to pay lower rate of interest initially. Later, the rate of interest escalated and this created all the trouble for Antony.
Recently, Obama administration announced the Homeowner Affordability and Stability Plan. It is assumed that the bail out program is likely to help about 7 million homeowners and save their property from foreclosure. Antony spoke to a financial expert to find out whether he qualified for the mortgage loan modification program or not.
It was found that he had qualified for the mortgage loan modification program. So, he sent a loan modification request to his lender. Whether a loan modification request will be approved or not solely depends on the lender.
There are a number of factors that are taken into consideration while deciding whether a loan modification request will be approved or not. So, in case of Antony loan modification request, lenders enquired if his property had enough equity or not. Antony was also asked to give documentary evidence that he was facing financial hardship.
Antony had to produce the following documents-
• Hardship letter
• Financial worksheet
• Recent and a valid driver’s license
• 2 Recent pay stubs
• 2 Recent year’s tax returns
• Attorney Retainer Agreement
• 3 Recent bank statements
• Mortgage payment statements/coupons
• Property tax statement
Once the loan modification request is approved, it is sent to the loan processing division and the existing terms of your loan are modified.
Lenders help borrowers in 3 ways. They can either extend the loan term of the existing mortgage or change the rate of interest. The principal balance is also reduced at times. In Antony’s case, the rate of interest he had opted for initially was an adjustable-rate mortgage. The lender changed ARM to FRM or fixed-rate mortgage.
However, it takes a week or 2 before the loan modification request comes into effect. Loan modification can help you in a number of ways provided you are eligible for the program.
Benefits of loan modification
Let us see how Antony benefited from the loan modification program.
• Loan modification doesn’t have any adverse effect on your credit rating.
• There are no negative tax consequences
• In majority of the cases, no new appraisal is required
• No closing costs
• No refinancing
• Your home equity is maintained
• A flat fee is charged for the services offered.
Loan modification is a good option for paying off your mortgage loan without refinancing. It can help you save a lot of money and you can pay off your loan as per a new payment schedule.
About the author: Jessica Bennet is one of the financial writers associated with the Mortgagefit Community. With her in-depth knowledge and vast experience, she has had a profound impact through writing and advising on all mortgage issues such as loan modification and foreclosures and has presented useful tips for the same. Her remarkable guidance and support has improved the community into a global hub for the mortgage related situations. She is highly appreciated by the forum moderators and other authors of our community.
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In one of his smarter moves, maybe the only one but we won't get into a political discussion here, President George Bush declined to offer a "bail out" to homeowners who are in danger of losing their homes. The federal government was considering this proposal for a few months now, but decided against it.
Not that I was people to become homeless or that I don't think people need help, but what good would it do to help so many people in financial crisis and how exactly do you decide who needs the help? A person could have a $60K mortgage balance with a $500/month house payment, but he just lost his job and he has no savings due to his frivolous spending. His neighbor makes $100K/year with a $800,000 mortgage balance that comes with a $3,000/month payment, he also has to pay for his two cars that he got to match the big house so he saves no money and his credit card debt is steadily rising. Who needs the money more? How do you decide that? And why is it just homeowners who would get a bailout, I know plenty of people who have financed $90,000 cars while making only $30K/year, don;t they deserve some help if your giving out money? I think the government was more interested in helping these people to keep the American economy from collapsing in on itself and they decided to put a good spin on it "we want to keep Americans in their homes." After doing some research, they must have realized that the problem was not as serious as first though, and decided against the proposal.
Even if they had done it, it would have saved tons of people a whole lot of money, but where would the lesson be in this. If enough people screw up in the same way, the gov't will come help you? Spend all the money you want because help is on the way, don't worry about buying a house that's too big or building up a savings account.
Some families were taken advantage of buy unscrupulous mortgage companies, taken out of their excellent mortgage rates and put into adjustable mortgages with no idea of what was going on. Some were mislead to believe that their houses will continue to gain value at a rate of 150% each year, when in truth they were already losing value. These families should at least have a chance to petition their cases and have their situation reviews for some form of relief if this program is implemented in the future.
Don't buy a house if you truly cannot afford it, you now how much you make and how much you spend more than the mortgage guy who just won't stop calling your house. Take control and stop before you end up looking for a government handout to try and keep your home.
Thanks for reading
I Love you Baby
For those us who don't have the cash or cojones to invest in physical real estate, myself included, REITs or Real Estate Investment Trusts are available and ready to serve us.
What are the differences between putting your money into a REIT and going out and buying a home, renting it out/flipping and trying to make a profit? It's simple, risk and an actual physical home.
REITs are like stocks or mutual funds; you can't live in them if you lose your current situation but the bank also cannot foreclose on your REIT because you can't make the payments anymore. An REIT is just a corporation that invests in real estate, but distributes about 90% of their income in the form of dividends. REITs offer nice dividend yields and some are not even very expensive. If you have a Sharebuilder account, you can buy the share in small increments. The more cost effective way might be to use ZECCO and avoid trading fees altogether. You also get the benefit of flexibility with this type of investment. If your house is in dire need of repairs and is costing you money every month, it may still take you 3-4 to sell this money sucker, not so with an REIT. They are easier to unload than a house and won't cost you 7% of the selling price (Agent fees) just for getting rid of it.
REITs are nice way to take advantage of big booms in the real estate market without taking on the risk of mortgage payments, unscrupulous tenants, rising tax rates, etc. Of course with less risk comes less reward. A home can go up in value ten fold given the right market conditions, which would give you a nice hefty sum of money right into your pocket. This won't happen with a Real Estate Investment Trust. You can, however, rack up nice dividends yields, capital appreciation, and have a nice stable investment as part of your overall portfolio.
As with all mutual funds, their are expense ratios with REITs so look over this before you decide to take the jump into this segment of the market. I personally like REIT as part of a balanced portfolio, until I have the capital to get into the real estate market, they provide a nice alternative. If someone offered you truck and said go out and drive this truck, make some deliveries and you can make $150K this year, just pay for all the maintenance on the truck and you can't hire anyone else to drive it. You know nothing about trucks or how to maintain them so you turn down the offer. If that same guy/girl comes up to you and asks you to invest X amount of dollars in his trucking company and you will get a nice quarterly check for 5% of the amount you put in for as long as your money is invested, would you do it? These are not real world numbers but I'm just trying to make a point people :)
By that same token, if you are a hands on kind of person and can handle the risk that comes with the market, then you can make a great deal of money in physical real estate. If your flipping properties, study the market conditions before you buy a fixer upper, not after. Just because your good at construction does not mean you can fix anything and sell it. If nothing in the area is selling for market price, you can lose your shirt very quickly. But if you are lucky enough to be in a sellers market, you can easily make $100K/property if you play your cards right. If you don't want to flip, you can buy properties and rent them out to tenants and get yourself a nice monthly cash flow. This can be risky as tenants can up and leave whenever they please without notice, they can also stop paying rent which means you have to go through the eviction process which can take weeks....and the mortgage payment is still due. But again, if you can rent three houses for even $100 above what the monthly payments to the bank are, that's $300/month positive cash flow for as long as that tenants stays, and you can raise the rent every time they sign a new lease. Study the market conditions before you go this route. Real Estate markets can be very finicky, just like the stock market, and even good research can't always predict what will happen for the next month. There are other options such as hiring a management company, contractors, and landscapers to handle all repairs and tenants in the house and all the minor headaches that pop up, all you supply is the cash.
In conclusion, REITs let you get your foot in the door of the real estate market with limited risk (you can lose only what you invest), more flexibility and generally less hassle than physical real estate. You can make a lot more money investing in physical estate, but you take on a lot more risk. I think REITs are a nice way to start until you get a better idea of what your doing, then take the plunge and get into the market with both eyes wide open.
Thanks for reading
I Love you Baby
Isn't this what got us into trouble in the first place. This article on CNN Money gives alternatives to those who would have otherwise used a sub-prime lender. Market collapse, people losing their homes and tons of money, overextended people with bad credit scraping to make mortgage payments...ring a bell to anyone?
While the article itself does offer sound alternatives, such as FHA loans, it still seems to perpetuate the need for low-income, sketchy credit families to own a home. There is not one person./family who needs to own a home, it is a want; for financial reasons, monetary, or any other reason you can think of. I know because I am one of those who wants house even though I don't necessarily need one. There are apartments available in cities across America, just waiting to be rented.
I believe owning a home is part of the path to financial freedom and success, but if it draining every last dollar out of me, it's not really helping me is it? According to this article, there is a Mr. Brian Montgomery who testified before congress in favor of having FHA "modernized" to benefit the "troubled sub prime borrowers."
I've been going over this in my head for the last few months.
My wife and I are putting away money for a "house", but we are not set on whether we want an actual house or a condo. There are benefits and drawbacks to both.
Condo
Benefits:
Cheaper to buy (in most places)
Cheaper to maintain
Amenities
Can still call super/landlord with problems
Condo complexes give instant "community"feel and safe environment
Easy to rent if you decide to move
Cons:
Neighbors
Lack of Privacy
Neighbors
No backyard
Neighbors
No room for expansion
House
Benefits:
Privacy
Backyard for kids/parties/BBQ
Sense of pride in "owning" a house
No neighbors
Can be expanded if lot is big enough
Cons:
All maintenance is on you, if you can't fix it you have to hire someone
Much more risk involved in terms of something being wrong that may take years to be exposed (i.e. foundation issues, roof problems)
These are just a few of the issues we've been throwing around. We do have some time until we start looking around, but these are pretty big to both of us. As far as the house goes, even with a thorough inspection, some things slip through the cracks (pun intended). The inspector may not see that rats or possums or raccoons love to come by the house at night and scare the hell out of your family just for the fun of it. The foundation for the house may look sound now, but after a pretty big rainstorm when the ground gets really soaked and you house shifts over about 1 in and then the walls start to crack.....not so much. Paying $7,000 to get your roof fixed does not seem too appealing to me either. Condo maintenance fees can also be raised if major repairs need to be done to the building, so the condo board can get into your pockets too. These expenses are spread out over all tenants, however, not just you.
With all that said, there a certain panache (not sure if I spelled that right) to owning your own home. I am not egotistical by any stretch of the word, but I would like to accomplish certain things in my life. Owning a home is one of them. Having a condo might be a great investment, financially, but I would still be an apartment dweller. I would have to deal with neighbors, and possibly doormen who don't really do their jobs, or the maintenance staff that is slow to get to everything. Condo living would still be a step up from renting, and every step forward counts in life, even the baby ones.
Ideally, I think if we find a nice condo with decent amenities (pool, fitness center, playground for the baby, washer/dryer in apt.) we will go this route at least for a few years, then try to sell for a profit and move into a decent house. Or we could try to rent and start our real estate empire there. The biggest thing for me, which may seem small to others, would be having a backyard for my baby girl to play in. Even if we get a condo with a child friendly playground, having her in our own backyard with her friends would be extra sweet. Also, spending the day or passing the night on the porch/deck with the wife after a long day at work, sipping on some lemonade and just talking and enjoying each other is pretty picture that always seems to be on my mind when I think "Home".
Financially, condos may not appreciate as fast as houses or maybe not at all. You are also at the mercy of your other tenants when it comes to valuation. If there are only a few owners actually living in the building, this will bring down value. Renter's don't care for the property as well as an owner would, and if others are renting and not buying, why should someone buy yours. With a house, if you happen to buy in a community that has already peaked, rise in value will slow or even drop. Not much you can do to stop this. No matter how much you put into the house, people will not give you $300K if 4 other houses on the block have gone for $250K in the last 6 months (all other conditions being equal, living space, exterior condition, etc).
Sounds confusing doesn't it? It is a big decision that I am glad to have in our hands. Most people never get a chance to own property. Some have no desire to, they are happy renting. There is nothing with that if that is what you choose. I plan to keep moving forward. Even the baby steps count.
Thanks for reading
I love you baby
CNN Money has an interesting article on the expected "shock" to the mortgage world when about $1 trillion worth of adjustable rate mortgages enter the adjustable portion of the loan.
About 3-4 years ago, I worked as a mortgage broker out in Long Island. I spent most of my day on the phone, relentlessly calling anyone who would listen until I could not dial anymore. The interest rates were so low that I could bring almost any one's monthly payment down by at least $150/month. This may not be worth the $7,000-$9,000 they had to pay in closing costs but I didn't tell them that part. I even convinced some people out of their 30 years fixed mortgages and into a 2 year-arm (the rate is fixed for 2 years at a much lower rate than a 30 year fixed, then goes adjustable and is based on the prime rate at the time, also known as a 2/28.). The 2 year arm gave them time to "fix up their credit and get some equity out of your house to pay of those pesky credit cards are stressing you out so much". You might say this sounds crazy and can't be true, but the sub-prime borrowers we were targeting would tell a different story. As long they heard the words, "This will cost you nothing out of pocket, everything is rolled into the mortgage" or "After we pay off $10K in credit cards, I'm still giving you $30K to do whatever you want with" or even "I can close you in 3 weeks if you send me everything I need today, and we'll do it at your house so you don't even have to leave. You get your check that same day" they were happy.
I'm not tooting my salesperson skills at all, I actually hate sales, I'm just trying to showcase the mistakes people agree to when they make uninformed decisions. After awhile, this job made me feel pretty lousy about myself. I was making good money, but I felt morally wrong taking advantage of people this way. Not to say that all mortgage brokers are evil people/companies, most actually do a good job of getting good people into good homes, I'm only describing my personal situation.
Needless to say, as young man with a little money in my pocket, a decent job, and a desire to "be somebody" in this world, I thought "damn, if Johnny can get a $300,000 mortgage for a new house, making only $45K/year, with no money down and a 530 middle FICO score... dammit so can I". Luckily for me and those who love me, I never followed through with this. The typical Johny only qualified by using a 2/28 (2-year fixed) or 3/27 (3 year fixed) with interest-only payments for the first year. He had to get the monthly payment low enough to qualify for the loan. Johnny had the same thought as some of the people in the article, that his house would continue to go up in value, he would "find a way" to make the payments and hold it together for two years. At that point he could cash out and even move to a bigger house if he wanted to. Laugh if you want to, but I use to listen to these plans all day.
I got a call one day from a man who had refinanced 2 years earlier with someone else and was now looking to refinance again to avoid going into the adjustable period. This is exactly the kind of "return customer" mortgage banks love. The guy would again have to pay closing costs, have to pay for an appraisal, and go though the whole process again. He tells me that he can barely make the payments he has now, so he is afraid of any rate increase that may occur and put him behind on his mortgage. His house was worth about $200K when he last refinanced and the young man he spoke to told him it was bound to be much higher when the fixed rate expires. Turns out, his house was actually worth only $205K (he got a second appraisal that actually came in at $190K). He did not have enough equity to do the refinance with us. He was stuck, nothing he could do. His only option was to sell the house and rent for the short term, but he was not about to give up his house. I never heard from him again.
This was what convinced me that this was not the way to go. I had to understand what I could afford, and go that route. The reason I remember this story is because this man may now be homeless, and my company helped him get there. If I had not spoken to him, I could have ended up homeless myself. I would have gone for the big house, found a way to get the loan approved, and would have no money to buy furniture and absolutely no way of keeping up with the payments or even putting gas in my car (that I would have bought to match the beautiful house I now had). Dont try to keep up with the Combs', make your own path and make everybody follow you.
Think it through before you make any big decision in life. I many not have my house yet, but when I do get it (and I will dammit), I won't going crazy trying to "hustle" to make my monthly payment, only to get it again the next month. Creative financing is all well and good, as long as you know what your doing. If you know for sure that you will not be living in a house for more than 2 or 3 years, then use those teaser rates to get in and get out. If your into flipping properties for profit, then go interest only because you won't need a loan for too long. Just know what your getting into. I'm all for taking chances in life, but some things should not be left to chance, like having a roof over your head.
Thanks for reading
I love you baby
This has been debated about for years and there about 1 million different calculators out there to help you figure this out. Rent vs Buy. I think every situation is different and each person or family should look at what they can do and what they can afford and go from there. Our rent is currently a little less than $1,100/month, add a few hundred more and we can afford a decent house so I think its time to go. We are shooting for 2 years, if our finances and our lives are in order Lord willing. It takes a lot of planning to make the move so we are getting an early start.
I don't think of renting as "throwing away money" as some people do. In some cases its all you can afford. Some people listen to this advice and stretch out every last dollar they have to make a mortgage payment. This not only adds stress to your everyday life, it takes away from the enjoyment of having your own house in my opinion. Soon you'll start with the "damn house is sucking me dry" or "I'm working just to pay the bank", where if you would have stayed in your rental you could afford that chinese food you've been craving (love me some chinese food). When you rent, your paying a landlord to provide you with shelter for you and your family, your not throwing money away.
Now if you can afford it without stress and without sacrificing too much, I think owning has many advantages over renting. For one, even if your house does not appreciate one dollar and maintains the value it did when you purchased it, you build up equity over time. In case of a cash crunch, you can take out a home equity line or even refinance and take some of that equity out. You can't really do this with an apartment. You can keep a savings account for emergencies (emergency fund) but with a house you can have both. Second, it's yours. Well its really the banks until you pay it off, but you can do what you like with it. Knock down a wall, change your cabinets, put a poster of Van Halen out in front. This is really your home. There's a certain sense of accomplishment and purpose I think you get from owning property. It's part of the American dream dammit, let me live :)
Now the drawbacks are there too, its not all roses and "look at me I have a house".
When you rent, you call the landlord when there's no hot water, a window breaks, or god forbid there is a problem with the plumbing. In your house this is your problem. There is no one to call but a repairman which you have to pay for. If there is any maintenance needed, its on you. Water heater has to be replaced, you pay for it--if it snows, you have to shovel--leaky roof, you might as well line up that 2nd job cause it going to cost you big time to replace the entire roof that the seller failed to mention needed to be replaced. Of course your inspector saw nothing wrong with the roof, now you have to take him to court...sorry ran off for a second there :)
Again if you can afford it, and can plan well and budget these expenses in with everything else...Go For It. I have an uncle who works parts time as a contractor, makes about $3,000 month but it varies. His mortgage payment is over $2,600/month. His wife works also but he is pretty much on hustle mode every month just to make the mortgage, this is what you want to avoid. Renting was no problem but he wanted a house to sort of "keep up the Jones'". My wife and I are working out a budget and savings plans now, 2 years ahead of time before we even start looking. My wife is a great planner and she has shown me the magic of making lists and clipping coupons, she really was the last piece of my puzzle. I can't thanks you enough mama, I love you. Hopefully this all works out and in 2 years I'll put up some pictures of our brand new home. Figure it out for yourself which side you stand on, Rent vs. Buy.
So if you really want it, plan ahead, don't rush. make sure you can afford it and take the leap into the sea of debt :) If you can't, keep renting. It's not a waste of money if you have somewhere to live and someone you can call to make repairs when needed. Make sure you are putting something in that savings account in the meantime though, your going to need it for those emergencies. I said it before, ING Direct can take the money straight from your checking account for you, no hassle. Just though I should mention that since they've been so good to me. They offer paperless checking too with that Electric Orange account. I'll try to review that later. Anyways...
Thanks for reading
I Love You Baby
I guess this is as good a time as any to mention our future home-purchasing plans. The wife and I have decided to shoot for 2 years to get into either our first home or first condo. Either way, we want to own some real estate. The 2 year goal was more my thing than hers. It was always my goal to get a house/condo before I turned 30. Due to several financial setbacks this is one of the few goals that I can still reach before my 30th birthday. Even if we don't get it by then, I would at least like to be in position to start looking and be able to make offers by that point. As far as goals go, we have revised them and have a new set ready and being worked on. But this was one of my originals, one of the O.G. goals :) With 3% down on a $200,000 property, we would be financing $194,000, this breaks down to a payment of $1,150/month PI(Principal + Interest). Property taxes in the Orange County area of NY where we are looking would be about $3,000/year ($250/month). Including homeowners insurance the total monthly mortgage should work out to a little less than $1,500/month. Seems like a big number, at least it did to me at first, but we are already paying almost $1,100/month for renting a 2 bedroom in the Bronx. This is considered cheap by Bronx standards. $1,100 plus the $400 we were already saving gives us the $1,500 target mortgage. If we factor in the tax breaks and the equity we will be gaining by purchasing a home, I think we are better off. Home prices should be dropping in the next few years with all of the madness surrounding the mortgage market. It will be more difficult to qualify for loans which will in turn make selling homes harder, this will increase supply and hopefully lower prices. Of course we will have to up our emergency fund accordingly and also put aside some money for maintaining our new home(1% value of the home = $160/month). We will be using about $6,000 for the downpayment, leaving us with $3,000 to make any small repairs or purchase furniture and another $1,000 to start the maintenance fund. We are also planning on bi-weekly payments to bring down the principal a little faster. The only thing I have to factor in would be the commuting cost to get to work. Of course the housing market can totally change during this time and we would have to come up with a totally different plan. But this is what we are shooting for as of today. We will have no debt outside of my wife's student loan and of course the mortgage. We have higher salaries at this point. I don't plan on putting a hold putting a hold on any of our other savings goals while doing this. It's aggressive, but you only live once and you have to challenge yourself. My wife is a strong woman and I know we can do this together. I know this goes against the grain in the mostly frugal personal finance blogosphere, but I think owning a home or any real estate is a rewarding (both financially and emotionally) and safe long-term investment. If we can pick the right area in the right school district, we can enjoy quality appreciation and a higher quality of life that we can get from renting. Thats my opnion on the wholebuy vs. rent debate. If you can afford it(make sure you can before you jump in), I say go for it. It is a huge commitment and it will be costly, but if you plan ahead and play your cards right then you will end up way ahead of the game. If anyone has any suggestions or comments, I will be happy to listen
While the house is the next main step for my wife and I, we have yet to go on a vacation alone. So this year we are planning on a one week getaway down to Florida. That is our primary savings goal for this year, we should have the account funded by the summer and we should be leaving sometime in October. We are still putting away a small amount for the down-payment, but it's just enough to get the snowball rolling down the hill. By the end of October we should be going full throttle.
The plan is to save at least $250/month but shoot for $300/month, increasing to $400/month for the last 6 months up until my birthday (2/08/2009). I give a range only because we have a baby with unexpected needs and I give us a little leeway for spoiling the poor little piglet :) This gives our "house" account a range of $5,400 - $6,000. Factor in the 2 tax returns for years 2008 and 2009 which I'm low balling at $2,000/year and this increases to $9,400 - $10,000. I'm also not factoring any interest earned on this account just to keep it simple. So roughly $10,000 to get into our first house. Here is the rest of the plan.
SONYMA is the State of New York Mortgage Agency, this is most likely who we will be using to finance the purchase. The "Achieving the Dream" program for first time homebuyers seems pretty enticing. They require only 3% down payment to purchase the property and they assist in paying the closing costs. The interest rate on the loan is currently 5.875%(this is sure to change in 2 years but not too much) on a 30 year fixed.
Thanks for reading
I love you Baby