Have you had trouble paying off the mortgage on your house, and have you undergone a loan modification? In addition, are you wondering: ‘Can I sell my home after a loan modification in the state of New York?’
If you answered yes to these questions, then you will need to read through our guide below to learn all about how to sell your house in New York after you have completed a loan modification. For example, you can find companies that buy houses in New York.
Changing the interest rate or other matters in your loan to avoid foreclosure may seem like it would cause a problem when attempting to sell your home. However, we will show you exactly how you can sell your house after loan modifications. Well, let’s get started!
What is a Loan Modification?
According to Forbes, changing your mortgage loan through a mortgage or loan modification can ensure you won’t face foreclosure on your home either in the near future or permanently. A loan modification can include:
- Changing the length of your loan
- Reducing your interest rate
- Transitioning from an adjustable-rate mortgage to a fixed-rate mortgage
Furthermore, a loan modification may include all three factors described above. A mortgage modification is different from mortgage refinancing, as it does not provide you with a brand-new loan like when you refinance.
In addition, there are specific loans, such as those backed by lenders like Fannie Mae or Freddie Mac, that are eligible to receive a Flex Modification. This type of modification allows you to increase the length of your mortgage loan or decrease the interest rate on your loan.
This won’t necessarily change the amount you owe on your house over the long term. However, it will decrease your monthly payments while you overcome your financial struggles.
During the coronavirus pandemic and the quarantine, many families struggled to pay their mortgage loans or rent. This occurred because many employees were furloughed or even terminated since some businesses went out of business or couldn’t afford to keep the same number of hires.
A loan modification can help these families decrease their monthly payments to afford their mortgage payments and avoid foreclosure. If you have undergone a mortgage forbearance, you can also ask for a loan modification if your forbearance expires and you still need more help paying off your existing mortgage.
If you have a federally-backed loan, the CARES Act ensures that you get up to one year of forbearance. Most mortgage loans are eligible for this, but about 14.5 million home loans are privately owned and can’t receive a forbearance.
To avoid foreclosure, contact your lender to learn more about options like loan modifications or forbearance.
How Loan Modifications Work
So how do loan modifications work? The mortgage loan modification process involves allowing a borrower who is undergoing a financial crisis and can’t pay off their original mortgage loan to change their loan terms.
Modifying a loan requires you to obtain legal counsel, such as mortgage modification attorneys, to help you resolve the issues with covering your mortgage payments. In addition, you may have access to government programs that can help with amending a loan.
A mortgage lender is only likely to grant a loan modification if the process is more financially lucrative for the lender than going through foreclosure. Therefore, if you have a potential foreclosure facing your home, then you should ask for a loan modification, as it may be less expensive for the lender than the foreclosure itself.
A mortgage lender can help you modify your loan using multiple steps, such as:
- Decreasing the interest rate
- Increasing the length of your mortgage loan term
- Reducing the principal balance
- Rolling over the late fees into the principal balance
- Changing your adjustable-rate mortgage to a fixed-rate mortgage
- Either some or all of the changes above
The best part of loan modifications today is that they will likely not hurt your credit score if you have a federally-backed loan. These types of loans include Fannie Mae, Freddie Mac, VA, USDA, or FHA. If the coronavirus pandemic led to this mortgage modification and you have a federally-backed loan, the CARES Act ensures that you won’t harm your credit score or your credit report.
Why You Would Get a Loan Modification
You may need to get a loan modification if you face financial difficulties and can’t cover your monthly mortgage payments. However, lenders have specific requirements for who is eligible for a loan modification.
Here, we will discuss why you may get a loan modification from your mortgage lender. For example, some lenders will need to see a late payment, a missed payment, or at least serious risk in missing a mortgage payment for homeowners to qualify for a loan modification.
Your mortgage lender will also need to see what caused your financial hardship and decide if a modification will help you afford your house’s mortgage loan. For example, people who have lost their job and their only source of income may not qualify for a loan modification.
However, if you changed jobs and your income has decreased, you may still be eligible for modifying your loan to have reduced monthly mortgage payments. Your lender will most likely need to see proof of financial hardship.
Some common reasons that can prove why you should receive a loan modification include:
- Health pandemic
- Divorce, separation, or becoming a widow/widower
- Loss of income
- Growth in housing costs
- Serious sickness or disability
- Natural disaster
Can You Sell Your House After a Loan Modification?
Are you wondering, ‘Can I sell my home after a loan modification?’ Well, you’ll be glad to learn that it is possible to sell your house after loan modifications, but there are specific factors you’ll need to watch out for.
For example, you will need to work with a real estate agent who understands loan modifications and important lending processes, as well as the cost of selling a house in NY. That way, you’ll have a much better closing on your home than if you worked with an inexperienced realtor.
You may decide that selling your home is necessary, as you may still struggle financially to pay off your mortgage despite the loan modification. Instead of facing a future foreclosure, it may be better to sell your property.
You may also want to downsize and move into a smaller home. A new job may also require you to relocate. The best part is that your lender cannot keep you from selling your home after a loan modification. You can sell the property as soon as the modification has taken hold.
Yet, there could be a prepayment penalty associated with the loan modification. This means that your lender may require you to pay a penalty if you pay off your mortgage loan early.
The prepayment penalty may be in the form of a percentage based on your entire principal balance. For instance, a 3% prepayment penalty on a principal balance of $400,000 could lead to a prepayment penalty of $12,000.
You should be aware that prepayment penalties may only be part of the loan modification requirements after several years. Check your loan documents to ensure that you won’t have to cover this type of penalty if the modification took place two or three years ago. Furthermore, prepayment penalties were reduced for some mortgages due to a 2014 law.
Now you know the answer to the question, ‘Can I sell my home after a loan modification?’ You can definitely sell your property even if you modify your mortgage.
How to Sell Your House After a Loan Modification
One way you can sell your house after the loan modification takes effect is potentially asking your lender for a short sale, especially if you’re still struggling to cover your monthly mortgage payments.
A short sale involves selling a home for less than the mortgage balance and closing costs. It won’t cover the entire cost of the mortgage, but using one’s savings could cover the rest. For a short sale, you’ll need to prove an additional financial hardship.
However, if you’re selling a house via standard homebuyers, you will first need to ask your lender for the payoff amount (or your loan total) in writing. You’ll also need to work with a realtor experienced in loan modifications.
Your realtor will need to be knowledgeable in this area and help you ensure that you only have to cover the payoff amount and face no other costs. The right real estate agent can even save you thousands of dollars in commission and find creative ways to sell a house.
Now you should know the ways that a loan modification can lower your monthly mortgage payments. Furthermore, you can sell your house after a loan modification, but you need to know the potential prepayment penalty.
Before you know it, you’ll have your home sold and feel the pressure of a large mortgage taken off your shoulders.