This article is written by Peters and Associates.
What is the difference between a loan modification and a refinance?
A loan modification is a renegotiation of the current terms of your mortgage, while a refinance is a new mortgage to buy out your present mortgage. Both can lower your payment and interest rate, and extend how much time you have to repay your loan. However, only a loan modification can lower the amount you owe on your home — sometimes reducing your unpaid loan balance to as much as 25 percent below what your property is worth. Furthermore, a loan modification can lower your fixed interest rate to below what a refinance can offer.
To qualify for a refinance, in most cases, your home must be worth more than what you owe on your current mortgage, you must have made on-time payments to your lender for the previous 12 months, and you must have good credit. You do not need to meet any of these requirements to qualify for a loan modification.
Can rental properties get loan modifications?
Yes. Rentals, second homes, commercial and investment properties can qualify for loan modifications. Like any loan modification, several factors come into play: which bank services your loan, who the investor is behind the loan and what the borrower’s financial situation is. Just as with a loan modification for your primary residence, it is important you consult a knowledgeable and reputable attorney before undertaking a loan modification negotiation on a nonprimary residence.
• Most loan modifications are based on income, not credit score.
• Loans can be modified more than once.
• Even if you are behind on payments, you still may qualify for a loan modification.
• Modification could reduce your unpaid loan to 25 percent less than what your property is worth.
• Lenders use specific criteria to determine loan modification eligibility.
If you have a question you’d like to see answered by an attorney in a future issue, please write to questions@PandALawFirm.com.
Please note: The information in this column is intended for general purposes only and is not to be considered legal or professional advice of any kind. You should seek advice that is specific to your problem before taking or refraining from any action and should not rely on the information in this column.