Tuesday, May 14, 2013

The Five Big Home Loan Modification Mistakes

As the housing crisis continues to build momentum across the country, successful home loan modifications are the only course of action standing between homeowners' ability to stay in their homes and being forced to move due to a foreclosure. If events leading to a foreclosure are unfolding quickly, a modification becomes a one shot chance that must be done correctly and as efficiently as possible. The following are the five big mistakes homeowners commonly make which can slow the process to a crawl or result in non-approval. They are:
1. Being unrealistic - If you are falling behind on your mortgage payments without a foreseeable change such as a raise or a higher paying new job, the problem is not going to go away on its own. Start pulling your paperwork together, learn as much as you can about loan modifications, and begin interviewing to get the best representation possible for your situation.
2. Dishonesty - You can assume that just about all your past sins can be discovered during the loan modification process. The new 4506-T form will allow your lender to pull the tax returns you filed to see if they match the returns you turned in with your application. Different versions can be a big problem for the homeowner. Many homeowners don't realize that their lender still has the original application file when they were trying to look as good as possible in order to get that approval. Trying to hide a big account when applying for a loan modification will raise questions about your integrity and, at the very least, slow the modification process. It's much better to lay all your cards on the table and let your attorney decide how to best present it.
3. A poorly written hardship letter - The main requirement for a loan modification is verifiable financial hardship. A poorly written letter which doesn't explain your hardship or how you are handling it can get you kicked out of the process before it starts. Instead, writing a letter which details the events leading to the hardship with backing documents is a great start. Finishing the letter with your plan on solving your existing situation will give your lender the confidence that your circumstances are temporary and that you are still a good loan risk.
4. Incomplete documents - Nothing slows down a loan modification like waiting for documents. Furnish everything asked of you at the beginning of the process as quickly as possible, making copies of it before turning it in. Additionally, if you are asked for supplemental paperwork like pay stubs along the way, get them in as quickly as possible.
5. Going it alone - Getting a Loan Modification executed to avoid foreclosure with terms that address your specific needs is no small undertaking. Going it alone in one of the most important missions in your life may save you some money initially but over the long term is likely to be more expensive and could literally cost you the roof over your head. Instead, hire an experienced loan modification attorney to give yourself the best chance at a successful modification with terms that are within your budget and sustainable for the long term.
And one critical mistake many homeowners make after a successful loan modification:
6. Using the extra money resulting from lower mortgage payments on unnecessary stuff - A high number of loan modifications go back into default within months of the modification's completion because the borrowers go back to spending money over and above their budget. Instead, save the extra funds to start rebuilding your savings in the event of a job loss or other reduction in income.