Struggling to keep up with home loan payments? Watch out for these common loan modification myths that could put you in an even worse position than you are now.
1. You Must Work Directly With Your Lender
Homeowners are increasingly being pressured to work directly with their mortgage lenders in order to obtain loan modifications, but it isn’t required. In fact, many borrowers complain that their lenders simply won’t deal with them. You must be careful about whom you deal with, but there are counselors, attorneys and third party loan modification companies out there too.
2. It’s Easier & Cheaper to do Your Own Loan Modification
This loan modification myth must have been started by mortgage lenders who were bitter about giving away too much. Even if you make minimum wage, the number of hours you will have to spend on the phone trying to do your own loan modification could easily add up to a month’s worth of pay. This doesn’t even count the hours it will take to fill out the loan modification application, gather your documents, and prepare a winning hardship letter. Plus, without someone on your side who is battling to get you the best deal, you could still end up paying a lot more than you may otherwise have to.
3. Applying for a Loan Modification Stops Foreclosure
Belief that applying will automatically stop foreclosure is one of the most dangerous and common loan modification myths. There have been many cases of banks and mortgage lenders foreclosing on and evicting borrowers who were still waiting for an answer to their application and who were told they were safe.
4. Your Lender Wants to Modify Your Loan
It is true that, given current market conditions, it really makes more sense for mortgage companies to grant modifications rather than foreclosing and adding homes to their already bulging sacks of REOs. While some are starting to see the light, many others are still stuck in the mentality that they shouldn’t give anything away. After all, providing they can continue to get bailed out and execs can bag big end-of-year bonuses, why would they want to change?
5. Everyone Gets Principal Reductions
In some cases outstanding balances may have been reduced, though this is much more common when it comes to short sales and shortrefinances. Your lender may be willing to wait to get its money back if that is the most profitable option, but it is not going to just give it up. Expect loan terms to be stretched out and interest rates to be slashed, at least temporarily, but don’t bank on any more than that.
6. Your New Payment Will Be a Lot Lower, Right?
Sorry, this isn’t always the case. Especially after being strung along for six months while your lender makes a decision and late fees and missed payments continue to pile up. This is where lenders get back at borrowers by offering a recapitalization with minimal payment savings right when they are at their most desperate. Then, if you haven’t been paying your property taxes and insurance to your lender and this is added to your monthly payment, it may not be as attractive as you expected.
7. You Can Skip to a Short Sale or Filing Bankruptcy Instead
Unfortunately, for those who just want to stop paying their mortgages and exit through a bankruptcy or short sale to get their heads above water again, applying for a loan modification is normally a prerequisite which can’t be skipped, even if you don’t want one.
Despite ripping apart these common loan modification myths, homeowners should still seek out modifications to lower their payments and make their homes more affordable. After all, why continue to pay hundreds of dollars more a month than you have to? Just be aware of the potential obstacles you face and go to battle prepared.