Many home owners who were unable to refinance and did not qualify for special programs like HARP opted for a loan modification (or loan mod). A loan mod is when the existing mortgage terms are adjusted or modified, in most often cases to reduce the mortgage payment.
To be clear, I am not in the “loan mod” part of the mortgage industry. My focus is on helping Washington home buyers and home owners with mortgages for purchasing a home or refinancing their mortgage. With my mortgage practice, I do come across home owners who have had a loan mod and they are often surprised to learn how it may impact their odds buying a home.
Many lenders view a loan modification, if done for reasons of financial distress, as a “pre-foreclosure” or short sale.
A lot will weigh on the borrowers credit report. Lenders will look to see how the loan mod was reported to the bureaus. For example, some lenders may have added language to the credit report such as “PAYING UNDER PARTIAL AGREEMENT” or “LOAN MODIFIED…” which indicates a loan modification has taken place. Lenders will weigh if the borrower had late mortgage payments, how late the payments were and how recent the last late payment took place.
It’s also possible that the loan mod may not prevent you from buying your next home depending on your circumstances and how the loan mod was reported to the bureaus.
If you’ve had a loan modification in the past few years and are considering buying your next home, you will want to connect with a mortgage professional as soon as possible to see what your options are.
If you are considering a loan mod, please review this information from Washington State DFI. Another great website for you to check out if you are a Washington state homeowner in distress is www.homeownership.wa.gov.
If you are considering buying a home located in Washington state, I’m happy to help you. Worse case, if you are not able to “buy now” we can work on a plan together so that you’ll be in a better position in the future.