How Loan Modifications Affect New Mortgages

Homeowners who took loan modifications to prevent foreclosure may find it difficult to get a new mortgage

How Loan Modifications Affect New Mortgages
May 17, 2016

During the housing crisis, many homeowners found themselves facing delinquency or foreclosure. One solution many turned to in order to keep their homes was the mortgage modification. Lenders were willing to change the terms of the borrower’s mortgage to forgive some principal, reduce monthly payments, or otherwise make changes to help the homeowner. However, these modifications may make it more difficult for these homeowners to get a new mortgage.

Many conventional mortgages require homeowners to have made 24 payments on their current mortgage after modification in order to qualify for a new mortgage. Those who had some principal forgiven as part of the modification may not be eligible for a conventional mortgage until they have paid that mortgage off. Those who had their monthly payment reduced and have made at least twelve months of payments may be eligible. Each modification tends to be a little different and depends on the needs of the borrowers, so the guidelines for who is eligible for a conventional mortgage tend to be somewhat flexible.

Some lenders also fail to report modifications, leaving them off of the borrower's credit report. If a borrower does have a modification on their credit report, they need to report the details to the new lender. Some lenders interpret modifications differently from what Freddie Mac and Fannie Mae do, and sometimes this works in the borrower's favor. If the modification does not appear on the credit report, documentation may not be necessary.

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irene | 05.17.16 @ 17:13
I know some people who did have a hard time because of this
Carla | 05.17.16 @ 17:14
We are a prime example of this. We tried refinancing once and were turned down due to the fact that we had filed for a loan modification. It is as if they want you to foreclose.
Elaine | 05.17.16 @ 17:15
This seems kinda scary to me. If it truly makes it difficult to get a new mortgage, is it really all that beneficial.
Daniel | 05.17.16 @ 17:16
This type of information is important to know and share, something that could seem as a help ends up being a hindrance.
Steffanie | 05.17.16 @ 17:16
Seems like something you would want to avoid if at all possible. Hope to never need to modify our loan.
trish | 05.17.16 @ 17:17
We went through a home mortgage modification but we had never missed or had never been late for a payment. We are still in complete good standing with our mortgage company. Hoping we have no issues but don't expect any
Erin | 05.17.16 @ 17:18
Wow, so you go from a bad situation to worse. It seems like the side effect s could be worse than the cure, just like so many drugs. That's disappointing.
$commenter.renderDisplayableName() | 11.25.20 @ 05:24