Home loans: Qualifying for the New Federal Mortgage Loan Modification Plan

The new government has come up with two plans to help people who are on the brink of defaults or have already missed a couple of payments. The new loan modification plan is said to be very helpful for home owners.

The qualifications that are required for getting the benefit of new loan modification program are

• The first mortgage of the applicant must not exceed $729,500.
• The primary or first mortgage must have been completed and signed by January 1^st, 2009.
• The mortgaged house must be the prime residence of the applicant.
• The income of the borrower or applicant can be verified using tax returns and pay slips.
• While applying for the loan modification program the borrower/applicant is expected to write a financial hardship letter in his own handwriting and submit it along with the application forms.
• The applicant is required to agree for credit counseling if it is seen that his house hold debts exceed 55% of his income.

There are certain things that can be done by the bank or financial institution to help out the borrower and thereby themselves.

• The banks have the power to reduce monthly payments to approximately 31% of the borrower’s gross monthly income.
• The interest rate would be about 4.5% though there are chances of it reducing to 2% also.
• The borrowers can avail the loan modification without any payment of fees towards it. The fee would be paid by the government to the services.
• In the event of payments being too low there are chances that a balloon payment would be scheduled towards the end of the loan period.
• The balloon payment has to be paid in the event of refinancing of mortgage or even paying off mortgage early.
• The government would reduce the principle balance for five years if the repayments are done in time. This incentive within the program has a maximum reduction of five thousand dollars.
• The low rate at the beginning of the plan is to help the borrowers tide over the difficult time. The rates are valid for the first five years. They would be adjusted up after the expiry of this term.
• Loan modification can be done only once. There is no chance for negotiations or bargains at a later date.

There are many cases where loan modifications have been refused by banks since the value of the property is less than the present principle balance. Such borrowers are qualified to try the new refinancing program introduced by the government.

• The borrower must have a good income so as to be able to support new mortgage debt.
• The mortgaged property should be primary residence of applicant.
• Cash out cannot be taken to pay off other debts from the new mortgage.
• The loan must be owned by either Freddie Mac or Fannie Mae.
• The interest rate would reflect the market rates. In addition certain fees and points would be charged.
• The mortgage term would be between 15-30 years.