What is a Federal Home Loan Modification?

Home loan modification is something that has been talked about a lot recently, but what is a federal home loan modification? In a sentence, it is a revision of your current mortgage that can help you avoid foreclosure. If you are having difficulty paying your mortgage or foresee problems in the near future, a home loan modification is something that you should look into as a foreclosure avoidance option.

A loan modification is a way of revising the terms on your loan. The government has made this program available to homeowners that are in foreclosure or are experiencing financial hardship. The government has made a website accessible for these homeowners to apply to have their loan modified. You will be required to provide the same information that you would if you apply for a typical mortgage. You will also have to include a statement about what caused you to be in your current financial situation and what you have done to turn your hardship around.

In most cases, your home will be refinanced with a lower interest rate, saving you money or you will be refinanced from a variable rate loan to a fixed rate loan. These are two of the most common options that are being used to avoid foreclosure, but they are not the only options for stopping foreclosure.

If you got your loan in the past 2-4 years, it is possible you fell victim to subprime lending and could have a loan that has an interest rate that is about the average rate for the current prime rate. If that is the case, it is possible that you could get your loan refinanced through the government’s mortgage bailout plan.

If you are an individual that has a variable interest rate loan, you may also have the same option to refinance your loan. You would be getting a loan that has a fixed rate that is consistent with mortgage interest rates that are available at this time. In this case, one of the biggest problems that homeowners will face will be with their home value. If your home value is less than what is owed on your home, you will not be able to refinance and your options will be limited if you cannot afford your payment.

If for some reason you have missed a few payments, many lenders will add the missed payments to the end of your loan. Unfortunately, there are millions of people that owe more on their home than the value of their home. And for these people a loan modification is not an option.