Why Loan Modification is a Good Choice over Refinancing your Mortgage
Articles - Mortgage
Once of the things American president Barak Obama, along with his administration have done is to implement a loan modification plan. Basically, the plan focuses on the lenders. By providing incentives in order to have them modify the terms and conditions of an existing loan. This makes it easier on homeowners to meet the monthly installments. Before this plan was implemented it was very difficult for homeowners to get their mortgage altered, because most of the cost that were involved had to be covered by the lenders themselves.
by KurtNovak


Once of the things American president Barak Obama, along with his administration have done is to implement a loan modification plan. Basically, the plan focuses on the lenders. By providing incentives in order to have them modify the terms and conditions of an existing loan. This makes it easier on homeowners to meet the monthly installments. Before this plan was implemented it was very difficult for homeowners to get their mortgage altered, because most of the cost that were involved had to be covered by the lenders themselves.

Determining if you qualify for the loan modification plan

To qualify for the modification plan you will need to show that you purchased the house prior to 2009 and that it is in fact your main residence. The loan amount cannot exceed $729.750, however, if you live in a more expensive area you can expect the loan limit to be somewhat higher than that.

Your first mortgage, including principal, interest, taxes, and insurance, must exceed 31% of your gross monthly income, and the program applies only to a first mortgage, not to any second mortgages or home equity lines of credit. Finally, you must be experiencing some type of financial hardship that makes it difficult for your to pay your mortgage. Common causes of financial hardship are job loss, a reduction in hours, illness, and divorce or separation.

After qualification comes the process

You very first step is that you contact the lender and request the modification. Remember though, that it is not necessary for them to agree unless they are participants in the Obama plan. Financial incentives means that many lenders are part of the plan.

Your next step is to get all the necessary paperwork in order. You will need to be able to provide evidence of your monthly income before tax,k the last tax return that you filed, if you have savings and/or assets then you are required to provide relevant info about them. You will also need to provide statements for the mortgage and loan and this includes your second mortgage if you have one, or else the home equity line of credit. To help make the process easier draw up a budget. Make sure that your monthly expenses, which includes your credit card and loan installments, whether it be a student loan, or something else.

Once you've gathered this information, you will go through the final process with your lender of negotiating the terms and completing the necessary paperwork.

Modification is the better choice:

So why bother to modify your loan instead of pursuing a refinance? The two main reasons are cost, and the ability to qualify. In most cases, you'll need excellent credit in order to qualify for a refinance in the current credit climate. If you're in danger of falling behind on your mortgage, chances are you have less than spotless credit. There are also no fees associated with a mortgage modification under the Obama plan, and if you are in arrears, late fees and penalties can be waived. With a refinance, you will be responsible for closing costs and other fees.

While on the subject of arrears a loan modification is a perfect solution. Of course, refinancing still has its own perks. For one thing, if you have equity in the home and you are after a better interest rate then refinancing is the answer. And it is irrelevant whether or not you qualified for the Obama plan. Also, should you need to access cash in your home\'s equity refinancing makes that possible.

Doing your own loan modification is a simple process, and there is no need to pay the typical fees of $800 to $2,000 to hire a lawyer or service provider to negotiate the modification on your behalf. The Obama plan provides enough incentive to lenders that you can negotiate your own modification, provided you are well prepared and can make a good case that you'll be able to pay your modified monthly payment.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

About the author: Kurt Novak is a long-time property investor who helps home owners avoid foreclosure. Read his blog to find the best Columbus Loans and successfully do your own Loan Modification.