Modification of a Loan - The 6 Eligibility Requirements


The current economic situation has left many people unemployed and most have found repaying mortgages very difficult or near impossible. Those who were already in a precarious financial position found it tougher than the rest to keep up with their monthly installment payments, and therefore, they defaulted. There are many others who have not yet defaulted on their mortgage loans, but they may be there soon enough. Mortgage modification is a way out of such a sticky situation if you fall under those two categories.

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You may not be aware of what you need to qualify for a mortgage modification. By opting for mortgage modification, you would change the terms and conditions of your mortgage. The object is to make it easier for you to repay the mortgage loan rather than let you become a defaulter, and eventually opt for foreclosure. This is possible by reducing interest rates applicable on the mortgage, or extending the mortgage loan term.

In some cases, the lender may have to forego some of the amounts that are due to it, though this very rare. Generally, lenders prefer adding back the dues to the principal for a specific short-term in immediate future, within the overall mortgage repayment term, and reworking the installments for the balance period. A permutation and combination of such options available for mortgage modification is used to arrive at an EMI which is convenient for the borrower to repay, and the lender does not have to absorb any losses.

To be eligible for the best type of mortgage modification, you must have a good credit score and a good employment record. If you have been consistent in repaying loans previously, and are unable to meet this obligation solely because of the effects of the recession, then the lender may be far more agreeable to accept any mortgage modification proposal that you may suggest. You should preferably come up with a repayment plan that does not extend too far into retirement period-this is because income after retirement starts stagnating or even decreases.

The property value should adequately represent the outstanding loan amount. If the value of property has gone below the outstanding loan amount, then it is difficult for the lender to be open to such a request. But President Obama's mortgage modification initiative gives more room to the borrowers to opt for mortgage modifications.

To be eligible under this initiative:

· You must have acquired the property to live in it, and not for speculation

· You should have purchased the mortgaged property before 1st of January 2009

· A hardship letter needs to be produced so that the lender is convinced that such hardship is genuine, and not an attempt by you to cut losses

· The amount of mortgage loan outstanding should also be less than or equal to US $729,750

· A test for determining the net present value of the home is also stipulated. This discounted value should indicate that in the future, the value of the asset is likely to appreciate. If not, then foreclosure might be a better option.

· Income of borrower is considered for determining eligibility for such mortgage modification. The EMI arrived at after such modification should not be more than 31 percent of your monthly income from all sources. However, if you knew you couldn't really afford the home and still went ahead with such purchase then you will not be helped much under this scheme.

Based on the above, you can decide what you need to qualify for mortgage loan modification and whether or not you are eligible for such modification of a loan. Remember, Obama's mortgage modification option is not the only product available in the market. Even those who do not qualify under this initiative can opt for general mortgage modification, and lenders may agree for modifications based upon merits on an individual basis.


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