Almost everyone is familiar with how a mortgage works and what the general terms are that are associated with it. Terms like mortgage amortization, interest rates and loan programs are pretty common knowledge. When you introduce some of the terms associated with loan modfication, most people aren’t as knowledgeable. That is one of the primary reasons that the term loan modification is so confusing for many homeowners who are looking for a loan modification attorney to help them.
Luckily you don’t have to be a financial expert to learn about loan modifications. Below are just a few of the important terms related to loan modification.
Debt-to-Income Ratio: Also sometimes called by industry professionals as DTI. Your debt-to-income ratio is the amount of money that you pay towards your total debts compared to your income. FHA guidelines dictate that generally speaking your debt to income ratios should be 29% on the front (mortgage debt only)and 43% on the back (total debt).
Deed-in-Lieu: Also sometimes called Deed-in-Lieu-of-Foreclosure. This means that rather than a foreclosure, the lender agrees to accept you to deed the property back to them in exchange for not foreclosing on the property.
Fair Market Value: This is what the lender will arrive at where they will be willing to sell the hosue in a short sale. FMV is usually arrived at by ordering a Broker Price Opinion (BPO) from a local real estate broker.
Foreclosure: Depending on what state you live in, the foreclosure process will be different. Generally speaking, a foreclosure is where your property is sold and the proceeds go to the lender which will allow them to recover part of the loss on your loan.
Forbearance: Forbearance is a temporary solution for borrowers who are having trouble making their mortgage payment and is an agreement where the lender agrees to revise the monthly payment for a period of time to allow the borrower to “catch up”. Forbearance may involve any number of options including lowering your monthly mortgage payment or even agreeing to suspend your mortgage payment for a period of time.
Principal Balance Reduction: When a lender agrees to reduce the amount of money that you owe as a way to reduce your mortgage payment, this is called a principal reduction. Principal reductions are not very popular with lenders and most will offer a different type of loan modification first.
Short sale: Short sales are a common alternative to foreclosure.When a home is “short sold” it means that the home is sold at less than the balance of the mortgage and all proceeds go to the lender. One of the reasons that short selling a house is popular is because it is less damaging to your credit and will let you buy a house again faster than a foreclosure will.
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