Pro’s: They work! Loan modifications are wonderful things when they are done correctly. People assume that they are going to lose their home if they can’t make their mortgage payments, but that does not always have to be the case. You do not have to lose your home to foreclosure, there are other ways in most situations to deal with your financial situation.
Con’s: Loan modificatons are not easy by any means. A lot of people look at them as a free way to reduce their mortgage payments for an extended period of time, but that is not the case. You have to do your due diligence on who to choose to represent you and the back and forth game with your lender will get old quick, trust me.
Loan modifications are not free either, you will normally pay between 1-3% of the value of your mortgage in fees to your representative and lender total.
Loan modifications are not instant. From start to finish, you will be lucky to get the deal done within 2 months, so do not expect immediate help by any means.
Hardship letters may sound foreign and intimidating, but they are actually fairly simple.
A loan modification hardship letter is basically going to be an “about me” type of letter. You will list your basic personal information. Why you are not able to meet your mortgage payments currently. What you want out of your loan modification. How a loan modification will help your situation… Everything that the bank would like to know about you and the situation you are in.
A hardship letter is a must whenever you are in serious talks about loan modifications, so you should definitely take them seriously.
Knowing what hardship letters are, and how to fill them out is very important. Not only do you have to be on top of your own personal financial situation, but you have to know the ends and outs of the situation you are about to get into.
Loan modification rates are not cheap, but they are worth it in the end.
The rates usually go at around 1-2% of the total mortgage. That ends up being a couple thousand dollars for a normal mortgage.
When money is tight, a few thousand dollars certainly seems like a lot, but in the grand scheme of things it is not.
Let me explain: 2,000 dollars is only going to be 1 or 2 mortgage payments, right? And once you get a successful loan modification, your mortgage payments will be significantly reduced for a while, at least until you are able to make normal payments again.
The verdict: It is not cheap, but it is certainly worth it. Having a trustworthy, qualified loan modification officer to be “on your side” will help you out tremindously.
Here are a few tips and tricks of the trade, take this as a loose guideline:
- Be honest. Do not lie to your lender, they are going to find out anyways about your situation so be as honest and upfront as you can. If you are sincere, honest, and trustworthy your chances of getting everything worked out will go up immensly.
- Have someone qualified to back you up. Whether it is a representative from a respected loan modification agency or an individual freelancer in the field, you are going to want someone there that is familar to the situation. A translator of financial mumbo-jumbo to common sense so to speak.
- Read the fine print. In most cases, what is best for you is ultimately best for the bank, but greed can and has prevailed in many situations. Make sure to look everything over and to have someone else look everything over to look for anything that looks fishy.
It is tough to make a blanket statement and declare that either loan modifications are better than refinancing or vica-versa, but it is safe to say that both options are better than foreclosure.
Both loan modifications and refinancing is going to set you back a few thousand dollars in fee when it is all said and done, so that is a “push”.
Refinancing is a good option if you have a variable interest loan and you want to “lock in” a fixed rate loan. Interest rates are very low for the time being, so refinancing makes sense for people that are meeting there monthly payments as well.
Loan modifications are more for people that are facing foreclosure and do not have many other options as far as their house goes.
Like I said earlier though, both are favorable to doing nothing about your situation and ending up in a foreclosure.