Q: I paid my 15-year mortgage for eight years before I suffered a hardship and had to stop making payments. I am trying to get a loan modification and want to know what happens to the equity in my home. And is the modification done on the original loan amount or just the remaining balance of the loan?
A: When your lender looks to modify your loan, it considers your budget to get a payment that is affordable for you to make. Lenders estimate that a person can devote 31 percent of their household income toward principal, interest, taxes and insurance. You do keep your equity. The loan modification amount will be based on what you still owe on the loan, plus the accrued interest and penalties for the time you did not pay.
To get the payment to an affordable amount, your bank will first look to lower your interest rate and will adjust the remaining term of your loan only if it is necessary to spread the payments over a longer time. It’s easy to see what your payments would be if the loan mod is approved by applying the 31 percent formula to your income.
To maximize your chances of getting approved, make sure to cooperate fully with lender requests for documents, even if it means sending in the same form multiple times. Also remember that the bank representative on the other side of the phone is a real person whose job is to try to help you and the many others in similar situations. Even when you’re frustrated, be patient and respectful.
Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar.
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