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Avoiding Foreclosure through Loan Modification

Sadly, with unemployment rates the highest they have been in 25 years, the number of people going through foreclosure has skyrocketed. With foreclosure reaching epidemic heights, lenders realize they have to be creative with options for loan modification, helping people save their properties. The key is that anyone in the situation of losing a home needs to understand there are solutions and that fast action is imperative. Often, a person struggling to keep a home will do nothing in fear that there are no viable solutions but in truth, a loan modification can help.

The first loan modification is for the loan to be reinstated. With this option, the homeowner would need to show the lender that he or she has available funding needed to pay the outstanding balance on the mortgage in a short time. Typically, a loan modification such as this works best for people that have the ability to pay all the past due payments on the home in a lump sum. However, many lenders offer a schedule of 12 to 24 months during which time the past due amount would be paid as extra money on top of the regular monthly house payment.

For a loan modification of reinstatement, the first option is known as total reinstatement. In this case, the mortgage loan is brought current, again in one payment. The lender would require funding to be paid via money order or cashier’s check to ensure the payment goes through. Additionally, the amount paid would not only be the past due mortgage payments, but any applicable late payments, fees, etc.

The other option for a loan modification in the form of reinstatement is with the repayment plan or schedule. For this, the lender would take all the past due amount owed and break it down into a series of payments. For this to be accepted, the homeowner would be required to make one full monthly payment plus a partial payment for the past due amount every month. As an example, for a house payment of $800 a month, the homeowner would make that payment plus anywhere from 30% to 50% of the $800. This means if the lender charged 50%, the monthly payment would go from $800 to $1,200 until the full past due balance was brought current.

There is also a forbearance plan under the loan modification, which means the lender actually suspends the homeowner’s payments or provides a significant reduction but only for a specific amount of time. During this time, deferred payments on the loan would be brought current. Then, for an actual loan modification, the lender would use the original loan terms but increase the balance of the loan to compensate for the amount in arrears or increase the amount of payments on the loan. For this type of loan, the investor would have to look at the homeowner’s situation and then make a decision.

Yet another possibility for a loan modification program is the partial claim program. For this particular option, the homeowner would pay cash in an amount equal to 30% to 50% of the amount past due. From there, the remaining amount in arrears would be provided by the lender but with no interest attached.

While being in a position of losing a home is distressing, with so many options for loan modification, people need to know there is hope. This is why it is important for people to take time to conduct research and work with a reputable lender. The key for the best option to be chosen is a loan that would keep the home out of foreclosure but without putting the homeowner in yet another tough financial situation. Lenders do not want homeowners to foreclose because they lose money. They would rather provide some type of loan modification to make it possible for the homeowner to keep the home.

People need to remember that with almost every loan modification option, some level of funding would have to be paid for the lender to make a deal. Again, the minimum is 30% of the past due amount so the homeowner is going to need something out of pocket. Without this funding, the risk of foreclosure becomes very real. Again, anyone faced with possible foreclosure should contact their lender immediately, asking about the various loan modification options available.

Sometimes, a person will look at all the possibilities and decide that refinancing the original loan is the best option. With this, the person could bring any past due house payments current but also pay off high interest rate credit cards, medical bills, or other debt, as well as pay college funds for a child, take a vacation, upgrade the home, or buy a new car. The money with a refinanced loan is more flexible but the important thing is getting the past due payments caught up so the home is not at risk.

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