What is a Loan Modification?
A loan modification is a permanent change in the terms of your mortgage to help you stay in your home. When a borrower has suffered a financial hardship, they often fall behind in their mortgage payments, risking foreclosure or bankruptcy. This can result in lower interest rates & lower payments, making the home affordable once again.
What is the Effect of a Loan Modification on My Credit?
There is no guarantee that a loan modification in general won’t impact your credit score. The modification means the mortgage lender is accepting less profitable terms. The lenders can’t make special terms for every mortgage they hold. They only want to make the change if it is better than the alternative of having you file for bankruptcy or go into foreclosure. Depending on your credit score & the modification program, your credit might take a hit.
Often times, in order to qualify for a loan modification, you might have to stop making payments for a few months. If you choose to do this, than your credit will be affected. Good news is that this doesn’t end up as a legal action, such as foreclosure or bankruptcy on your credit report. Your payment history is about 35% of your credit score. Within time, you should be able to repair your credit score, unlike with foreclosure or bankruptcy – which can last a lifetime.
What are the Alternatives to Loan Modification?
If you don’t qualify for a loan modification & can’t make your mortgage payments, you do have another option to avoid foreclosure & bankruptcy… Short selling your home.