Myth #1: The bank wants my house. The bank wants me out of my house. Banks along with other lenders do not want to foreclose on homes that they have mortgaged. Lenders make more money if homeowners are able to make regular payments. When banks enter into foreclosure, they not only stop receiving monthly payments, but they incur attorney fees for the foreclosure, possible rehabbing expenses to sell off the home, then agent commissions when the home sells. In addition to these expenses, the bank will likely sell the home at a loss. All these factors add up to good news for distressed home owners. They may just find that their lender is very willing to work with them on a loan modification.
Myth#2: I possess a poor credit score so I know I will not qualify. Keep in mind that there is a difference between refinancing out of trouble (which requires the application for a new loan) and loan modification which only involves that adjustment of the terms possible the balance of a loan which you already possess. Your current credit scores are much less a factor in the overall determination of a loan modification. Keep in mind that a successful loan modification can actually improve your overall credit score. Most especially if the modification saves you from going into foreclosure.
Myth#3: My mortgage payments are current, so I do not qualify. Or, thinking that payments must be delinquent to qualify. This was previously true. In the past, some eligibility requirements were that home owners must have been at least 61 days delinquent in their payments. (2 full month's payments) Truth be known, eligibility requirements are constantly changing and differ greatly from lender to lender. Many lenders are indeed creating loan modifications to home owners that are current on their payments, but in fear of becoming delinquent. Do not make any assumptions regarding whether or not you qualify. Speak with your lender or an attorney who specializes in the field of loan modifications.
Myth#4: Opting to walk away from my home and declare bankruptcy is better than loan modification. These are definitely two options when facing foreclosure, but are rarely the best ones to choose. If you were to choose to walk away, the lender is unlikely to take any legal action against you, however in some areas the lender can pursue what is called a deficiency adjustment again you. This involves the lender demanding you pay the difference between what the lender sold your home for at auction and what you owned on the home before you walked away. Opting to file bankruptcy could be better than simply walking away. The obvious downside is that your personal credit score is diminished, making it difficult to obtain loans for several years in to the future. Obtaining a successful loan modification would prove to be the more prudent option.
Myth #5: Time has run out. It is too late. A foreclosure notice has already been posted on my front door. Keep in mind that as long as you still reside in the home and have not walked away from it, and the home has not yet sold at auction, you may still have time to work with your lender on a loan modification. The faster you decide to take action, the more possible options you may have. You can still negotiate with your lender this late in the process. By contacting your lender - or even better yet, having your attorney contact you lender on your behalf - you will be showing a good-faith effort towards the saving of your home.
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