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Mortgage Modifications and Your Credit: What You Need to Know

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Mortgage Modifications and Your Credit: What You Need to Know

At some point in time, we are all faced with financial difficulty. Then we need to make fiscal adjustments to remain afloat. Out of the eighty-plus million homeowners in America, many find themselves in the predicament of not being able to afford their monthly mortgage payments. And feel the only option is to foreclose on their home. If you feel you may need to foreclose on your home, read these options first. There are many alternative options out there that can help you keep your home and get back on track. One of these options is called a mortgage modification (mortgage loan modification).

A mortgage modification (mortgage loan modification) allows you to alter the initial terms of your mortgage. Due to financial difficulty. The goal of this modification is to reduce your monthly payments. Which is decreased by the lender. Who will determine your new monthly payment based on clauses altered to your initial mortgage contract.  Not to be confused with refinancing, whereby your current loan is replaced entirely.

Mortgage Modification: Government Loan Modifications

Depending on how your loan is modified, foreclosing your home will do much greater damage to your credit than any sort of modification. Whether it is a principal reduction, lowering interest rates, extending your term, getting a fixed rate loan, or postponing your payments. In some instances, modifying your mortgage loan may not necessarily do damage to your credit at all. If you qualify for a loan modification, there are government programs that allow you to report your mortgage as paid in full, or current. So long as you meet the requirements of the program. In these kinds of circumstances? Your credit has most likely taken a huge hit due to a string of missed mortgage payments. So you shouldn’t worry about your credit score since you aren’t in the position to acquire any more debt and these programs will help you recover.

Your Credit Score and Lender Loan Modifications

Don’t qualify for any government programs? Such as Freddie Mac or Fannie Mae, or kind of any Home Affordable Modification Program (HAMP)? Choose to go through your lender? Your modification may be reported as a debt settlement. Which will indeed have a negative effect on your credit score. These kinds of settlements are reported as unfulfilled by your original loan terms. Granted, these effects will have vastly less severity than a foreclosure or several missed payments. Only if your lender doesn’t report a change in the settlement would it not impact your credit score. This may actually improve your credit score. As your monthly payments would be reported as decreased. It’s always a good idea to ask your lender how they report your settlement. You may even be able to convince them to not even report it as an adjustment, let alone a settlement.

Trial Modifications Listed “Current”

If and when they grant you a trial loan modification? Be aware the trial is certainly not your definitive loan modification. It is merely the initial phase in attainment your permanent loan modification. The purpose of this trial is to evaluate your aptitude to pay. They may or may not offer you a permanent modification. Depending on whether or not you follow through with the trial.

Legislation has made it certain lenders are aware trial modifications should be “current,”.  Though, not on a modified schedule. Though this may still negatively affect your credit, it will not be as critical as several missed payments reported. If your lender fails to file your payments “current,” consult them to the Home Affordable Modification website to receive proper reporting.

At Barifay Law Offices, we know these decisions can be difficult, and life-altering to some. Please, contact us today to see your options on mortgage modifications, and don’t hesitate to ask us more about modifications and your credit.

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