Losing your job can set you back on your mortgage if your reserve funds run low and can possibly lead to foreclosure. Contacting your lender before you get into this situation can prevent damage to your credit due if the lender determines that you qualify for a loan modification. In a modification, the lender restructures your loan payments, bringing them down to an affordable amount. You must have sufficient income to cover a modified payment.
Assess Your Situation
Before considering a mortgage modification, review your situation and determine if it's long term or temporary. Getting your mortgage modified could take three to six months. Continue to make payments on your mortgage and home insurance policy if you can, as the lender will review your payment history and ask for proof of homeowners insurance when you apply for a loan modification. Additionally, gather documentation detailing your financial situation and create a hardship letter supporting why you need a modification. If you qualify for unemployment benefits, apply as soon as possible.
Giving The Lender a Heads Up
Contact the lender to find out what options are available to you. Find out if your loan servicer is also the owner of your loan since you will need permission from the owner of your loan to modify it. The lender may have an in-house mortgage modification program or participate in the government's Making Home Affordable program. In most cases, the lender will require you to speak to a representative and submit a modification request with supporting income, asset and financial hardship documentation.
Making Home Affordable for the Unemployed
The Home Affordable Unemployment Program, offered through the Making Home Affordable initiative, gives borrowers relief from mortgage payments in two ways. It may suspend your mortgage payments for up to 12 months or may reduce your payment to no more than 31 percent of your gross monthly income. To participate, your loan can't be owned by Fannie Mae or Freddie Mac and you must be eligible for unemployment benefits. You must also occupy the home as your primary residence and have obtained the loan on or before January 1, 2009.
Additional Mortgage Modification Considerations
Lenders may require that you are several months behind on your mortgage in order to consider you for a modification. Fannie Mae and Freddie Mac's streamlined mortgage program requires minimal income documentation, but requires you to be at least 90 days behind on your mortgage. The federal government's Home Affordable Modification Program has different requirements for primary residences and investment homes. Under the HAMP program for rentals and second homes, you must be delinquent on your loan.
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