What is loan modification?
In simple terms, loan modification means changing the original terms and conditions associated with a particular loan, and negotiating with the lender for a new set of terms and conditions, which makes it easy for the borrower to repay the loan. While signing a loan agreement, the lender states certain aspects of the loan like the rate of interest at which the borrower has to repay the loan, what the monthly payments are going to be, what is the duration of the credit facility, and in case of defaults what kind of penalties or fines the borrower is liable to pay. At times, the borrower finds it difficult to keep the terms of the loan agreement due to various reasons such as a job loss, unexpected expenditure, a divorce settlement etc, and cannot make the monthly loan payments.Through loan modification program it's possible to change the monthly installment amount by reducing it, or seek a waiver for the late fees or fines. It's also possible to change the interest rate of the loan.
During the process, the borrower has to negotiate with the bank or the lender to redraft or modify the loan agreement. This requires certain skills as far as the negotiation process is concerned, since the lender has to be properly convinced to negotiate, and the average lender does not desire to suffer any loss by giving discounts or waiving the interest charges. Loan modification companies make this possible by through their service.
Availing a mortgage loan modification
Certain conditions have to be met to qualify. They include:
The net income is reduced or lost due to any reason such as a job loss, salary reduction, a failed business etc.
The household conditions change due to the death of the borrower or the co-borrower, death of a relative, unexpected medical expenses or childcare expenses etc.
The net payable monthly dues become excessive due to improper usage of credit cards, an inability to pay off an unsecured personal loan, an increase the utility bills, and even increased taxes.
The cash reserves of the borrower decrease, or are not sufficient enough to cover the existing mortgage payments.
FHA Home Refinance
Mortgage refinancing is similar to a mortgage loan modification in many ways. Through the FHA streamline refinance program, the FHA allows a modification or refinancing on insured mortgages. The word "streamline" in "streamline mortgage refinance" type of loan indicates that some of the conditions stated in the loan document can be altered, or changed, to make the mortgage more "streamlined" for successful repayment of the mortgage loan. FHA supports these kinds of facilities by providing FHA home refinance loans. It's easy to qualify for these kinds of loans. It's also recommended to study the Obama's Loan Modification Plan which supports the FHA.
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