Mortgage Approval After a Loan Modification Guidelines

This guide covers mortgage approval after a loan modification guidelines. Mortgage modifications are a failsafe put in place to help clients avoid foreclosure. This is a formal agreement between you and your current mortgage servicer changing the terms of your mortgage. Typically, these terms go into your favor, lowering your monthly payment, or lowering your principal balance. In this blog we will detail some common mortgage modifications, waiting periods after loan modifications, and how to apply for a mortgage after your loan has been modified. In this article, we will discuss and cover mortgage approval after a loan modification guidelines.

What is a Loan Modification

In this section, we will cover mortgage approval after a loan modification. A loan modification can mean many different things. In fact, almost every loan modification is different and unique based on the borrower’s financial struggles. A loan modification is a recorded change made to the terms of an existing loan. As mentioned above it could be an extension of the length of repayment, a principal reduction, a reduction in the interest rate for a specified time period, deferred payments, or any combination of the above. Each loan modification is negotiated between you and your current lender. These changes will only go into effect after you contact your lender and let them know you are falling behind or have already fallen behind on your mortgage payments.

Home Loan After Mortgage Modification Guidelines And Terms

According to the CFPB, the Consumer Financial Protection Bureau, A loan modification is the change in your loan terms. A type of loss mitigation. Below is a link to their website for more details:

CFPB Defines Loan Modification

Typically, a loan modification will lower your overall monthly payment, one way or another. We all know nothing in this world is free. It is important to understand the terms of your modification, both short and long-term. Many times, there are interest payments attached to the back of your loan which will be collected upon refinance or sale. You are encouraged by the CFPB to understand all of your terms before entering the modification.

Loan Estimate Replaces The Good Faith Estimate: What is the Difference

You can no longer make the payments under the original mortgage terms.

• The loan modification process can take time
• After you contact your lender, there is no guarantee they will approve the modification
• Many times, it is in the lenders favor to offer you this modification
• You may be upside down on your mortgage
• Meaning you owe more than the house is worth. In that case, the bank will want you to continue to make payments
• Otherwise, they will lose out on more money

However, the opposite can also be true, if you have a large amount of equity, they may be less willing to give you a loan modification.

Loan Modification versus Foreclosure

A loan modification can be a great alternative to bankruptcy and/or foreclosure. The bank must be willing to issue you a modification. In this blog, we will detail mortgage qualifications after a loan modification and qualifications if a modification does not go through. We will discuss Mortgage Approval After a Loan Modification Guidelines on home loans.

Typical Loan Modifications Structured By Lenders

Common Loan Modifications:

Principal Reduction:

• Simply means the current servicer will forgive a portion of the principal balance owed
• Depending on your modification, this can be a substantial amount
• The largest I have seen is a $100,000 principal reduction

Mortgage Approval After a Loan Modification on an Extended Loan Term:

• Basic math shows us a longer-term means a lower monthly payment
• In certain cases, we have seen loan modification extend the mortgage terms all the way out to 40 years
• Or if you have been paying on your loan for a number of years thus far, your loan modification may extend your mortgage back to a 30-year mortgage term

This is designed to lower your monthly payment and allow you to maintain making mortgage payments.

Mortgage Approval After a Loan Modification on Interest Rate Reduction:

• Many loan modifications also provide a lower interest rate
• In some cases, they may turn an adjustable-rate mortgage into a lower fixed-rate mortgage to help you stay on track
• In other cases, they will tear your interest rate
• They may start your modification at 2% interest for the first two years, then raise it each year until the interest is paid back in full
• This is designed to lower your payments and slowly bring as you recover from your financial crisis
• At the end of the day, the bank does you a favor lowering your payment, and you still pay back all the interest owed

This type of interest rate reduction is very common.

Customed Tailored Loan Modification By Lenders

Keep in mind that every mortgage modification is slightly different and may involve a combination of the items above.

• Settlement companies work on a borrower’s but have to negotiate modification terms
• These companies are a for-profit business
• Please keep that in mind they may also utilize a mortgage modification lawyer to help stay out of default and enter into a loan modification

Depending on the type of mortgage you currently have, there may be government programs to help you with your loan modification.

Types of Mortgage Approval After a Loan Modification Guidelines And Programs

Below are the various loan modification programs:

• FANNIE MAE has a program called FLEX MODIFICATION.
• FHA has a program called FHA-HAMP (Home Affordable Modification Program.
• U.S. Department of Veterans Affairs offers MORTGAGE COUNSELING but seems to only have modification programs for Disaster Relief.

They offer some good advice for struggling Veterans, please see the VA DELINQUENCY ASSISTANCE GUIDE

Now that we understand what a mortgage modification means, let’s discuss waiting periods after you successfully enter into a loan modification. We want to reiterate the fact that no two loan modifications are the same, this is general information in this blog. Your specific loan modification may have longer waiting periods depending on the terms negotiated.

Mortgage Approval After a Loan Modification Guidelines on Waiting Period Requirements

The waiting periods below for mortgage approval after a loan modifications in general is listed below:

• Most of the time, you need to wait 12 months before entering into a new mortgage
• During this 12-month period, all modified mortgage payments and all other debts must be paid as agreed
• There cannot be late payment popping up after your mortgage has been modified
• Similar to qualifying after filing a CHAPTER 13 BANKRUPTCY
• Assuming all of your payments are on time after the loan modification, after a 12-month waiting period you are then eligible to purchase a new property

Of course, you must meet all other agency guidelines to qualify for the mortgage.

Mortgage Approval After a Loan Modification Guidelines on Refinances

In this section we will cover mortgage approval after a loan modification guidelines on refinances. Refinancing out of the modified loan

• Most of the time, refinancing your modified loan has a waiting period of 24 months
• Some modifications are longer
• As mentioned above, each loan modification is different
• The bank who modifies your loan is trying to assist you

They also need to recoup some of their costs, that is why the waiting period is longer when refinancing.

Understanding Terms of Mortgage Approval After a Loan Modification

It is important to understand the terms of your loan modification.

• There have been countless times where we have clients who do not know they have a principal amount you after their current mortgage pay off
• Each loan modification has different terms

We cannot reiterate that fact enough. Before entering a loan modification, you may want to consult an attorney.

Lender Must Approve Loan Modification

As stated above, your current bank or servicer must approve the modification. Sounds easy, but it is a long-drawn-out process. Once you have come to a modification agreement and enter the modification you now start the clock of being eligible to enter into a new mortgage.

What Happens After Loan Modification

What happens after a loan modification? Every modification is a unique situation. Some modifications lower your payment. They often add interest to the back of the loan. Some lower your interest rate temporarily to give you some payment relief. Some forgive part of the principal owed on your mortgage. No two modifications are the same. Each loan program reviews loan modifications differently. When entering a loan modification, it is important to understand that the payoff on your mortgage statement may not be accurate. You may owe more on your loan than is stated. Make sure you are FULLY AWARE of how much you owe when modifying your loan.

Qualifying For Mortgage After a Loan Modification Guidelines on Loan Programs

After you enter into a loan modification, you are required to fulfill the terms agreed on. What happens if you would like to buy a new home or refinance the modified loan? See waiting periods for each loan program below:

Conventional Mortgage Approval After a Loan Modification Guidelines:

• Must be 4 years into the loan modification
• You must have four years of on-time payments before being eligible for another Conventional loan

FHA Mortgage Approval After a Loan Modification Guidelines:

• Must be in the modified loan a minimum of 12 months
• 12 payments have elapsed since the modification agreement was put in effect
• You must have 12 on time payments to the new modified loan to be eligible to enter into a new FHA mortgage

VA Mortgage Approval After a Loan Modification Guidelines on Home Loans:

• Must be in the modified loan a minimum of 12 months
• 12 payments have elapsed since the modification agreement was put in effect
• You must have 12 on time payments to the new modified loan to be eligible to enter into a new VA mortgage

Timely Payments in Past 12 Months

For FHA and VA mortgages, the 12 on time payments will demonstrate your ability to be financially responsible with your mortgage. An underwriter must verify the 12 payments on the newly modified loan. There are times during a loan modification where the credit bureaus report false information (or do not report the mortgage account). An underwriter may use a VOM (verification of mortgage) in place of the credit report. This will be verified through a third party to make sure all payments have been on time, NOT MORE THAN 30 DAYS LATE.

Cases When Mortgage Approval After a Loan Modifications is Not Approved

What if your loan modification is not approved? We have heard many stories of a trial modification that does not go through. At the end of the three-month trial period, the loan modification may not be accepted. The time frames above are still in effect. Depending on the loan program and AUS findings, you may be required to demonstrate more than 12 on-time payments. Example, for an FHA manually underwritten loan, your housing payments need to be one time. The HUD guidelines state. ZERO late payments in past 12 months. No more than TWO 30 day late payments in past 24 months. Chances are your payments are more than 30 days late if you are negotiating a modification. Please contact GCA Forums Mortgage Group for more on AUS.

Qualifying For Mortgage Approval After a Loan Modification With a Lender With No Overlays

Many lenders will add additional LENDER OVERLAYS to their mortgage qualifications. Many times, a lender may require you to be in a loan modification for longer than 12 months before allowing you to enter into an FHA or VA loan. That is not the case with GCA Fourms Mortgage Group. We will directly off FANNIE MAE,FREDDIE MAC, FHA, AND VA (HUD) GUIDELINES, nothing additional. If you have entered or thinking about entering a loan modification, please contact Alex Carlucci on 800-900-8569 for mortgage advice. Or text us for a faster response. Or email us at gcho@gustancho.com. WE DO NOT OFFER LOAN MODIFICATIONS, but can tell you about your qualifications in the future.

Mortgage Approval After a Loan Modification Guidelines Versus Overlays

Many lenders have additional lender overlays surrounding loan modifications.  The good news is, at GCA Forums Mortgage Group we do not have any lender overlays. We will go off the bare minimum waiting periods for mortgage modifications. We do not offer loan modifications door have advice on entering a loan modification. We are only here to help you after a year or longer after a modification. Please feel free to call Alex Carlucci on (800) 900-8569 or text us for a faster response. Or send an email to gcho@gustancho.com with questions. Our highly-skilled mortgage team is here to assist you 7 days a week including holidays. We look forward to hearing from you.

FAQ Mortgage Approval After a Loan Modification

Let’s take a look at the most frequently asked questions (FAQs) about loan modification and getting a mortgage: FAQs on mortgage approval after a Loan Modification.

Getting a Mortgage Approval After a Loan Modification?

Loan Modification means changing one or more terms of an already existing mortgage loan to achieve more economical servicing terms. This may consist of changing the interest rate, the maturity of the loan, or even the type of the mortgage.

Can I Still Get Approved for a Another Mortgage Approval After a Loan Modification?

A new mortgage could be approved even after a loan modification, but this and several other conditions may take time, including the waiting time, your score, and other requirements.

When Can I Start Applying for a New Mortgage Approval After a Loan Modification?

The waiting period may also vary depending on the lender and the type of loan. But generally, after a loan modification, you need to wait for 6 months to 2 years, depending on the lender’s policies, to apply for a new mortgage successfully.

What Alteration of a Loan Modification Does My Credit Report Develop?

One of the cons of a loan modification is that it may hurt your credit score. However, the impact will depend on whether it was reported as a ‘paid as per modified terms clause.’ The opposite prevails if it has any association with delayed or non-paid loans.

What Factors Do Lenders Consider While Approving a Mortgage for a Customer Who Has Undergone Modification?

A mortgage for a customer who has undergone modification is approved by the lenders based on these factors:

• Credit Score: the creditworthiness of a borrower after the modification.
• Payment History: The borrower’s history of making payments on the new agreed and modified loan.
• Debt-to-Income Ratio: The borrower’s capability of managing fresh debt considering the existing debt.
• Employment and Income Stability: Employment and salaries that confirm regularity.

While Seeking a New Mortgage Approval After a Loan Modification, Would I Have to Present Another Set of Documents?

Yes, this may involve Proof of income (such as paychecks and tax forms), the latest credit reports, and evidence indicating the successful alteration of the loan.

After Waiting a Few Months, Can I Refinance My Modified Loan to a New Lender For a Lower Interest Rate?

Yes, you can modify a refinancing loan, but lenders may have some rules regarding that. Make sure that you meet the lender’s refinancing requirements and provide them with an excellent history of making payments on the modified loan.

I Have Gotten a Loan Modification. What Other Types of Loans Can Lenders Offer Me?

There are different types of loans and depending on your case:

• Conventional Loans: It is a good idea to check with each lender after a modification because they might have application restrictions.
• FHA Loans: These have more relaxed requirements, but the borrower may need to have made a couple of months’ worth of payments post-modification.
• VA Loans: These loans are largely identical to FHA, but some specific requirements exist.

If I Can Refinance, Should I Do It Right After a Loan Modification?

Yes, it is doable, but it might be recommended to wait until reliable payment histories are built up on the modified loan. This may improve the chances of approval and provide better terms for the loan, as it will be granted now.

After Applying For a Mortgage Approval After a Loan Modification: What Must I Do After Being Refused?

A critical thing to remember is to check what the mortgage lenders cited when denying your application. Generally, you may be required to:

• Raise your credit score.
• Decrease your debt-to-income.
• Finance history by waiting some time while making regular payments and reapplying.

One can get a mortgage after undergoing a loan modification. Still, you will first need to plan your finances and the time of application. Educating yourself on the pointers and aspects that mortgage lenders focus more on and getting your documents ready can help increase the chance of getting approved. Remember to speak to a mortgage professional before deciding to understand your situation better. 

This guide on mortgage approval after a loan modification was updated on November 28th, 2024.