Profile picture for sugababy

does a loan modification affect your credit score like short sales and foreclosures?

my husband and i tried to get a modification a couple of years ago but were denied. our loan is set to adjust in 2012 and we will most likely not be able to afford our new mortgage. i was trying to be proactive by trying to apply for a modification now or should we just wait until it does adjust to help our reason for needing our loan modified. also, does this affect your credit score? if so, how does it...does it make it harder to buy another home in the future?  

  • February 04 2010 - Cordelia
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Answers (5)

If you are experiencing financial hardship (decrease in monthly income, unexpected medical expenses, etc.) that affect your ability to pay your mortgage, but still have income that you can document, then you might want to try applying for a loan modification again. Yes, your credit score would take a hit if you get a loan modification. Guidelines for a waiting period have been established for short sales and foreclosures, but not on loan modification. Underwriters advise that it will be considered in a case by case basis if you are to looking to buy in the future.   

Have you also look and see if you and your husband qualify for the Home Affordable Refinance Program?  You might be able to refinance to lower your rate and payment if you qualify.
 
Meanwhile, it's also good to check with your lender and have them explained to you what your projected rate and payment will be when your loan reset (index, margin, etc.).  No one can predict the future or how rates are going to be like in 2012, but you will at least have an idea of what your payment will be and how it will be calculated then. 


  • February 04 2010
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I think a bigger unanswered question is how lenders are going to view any applicants who want to purchase a home and have had a loan modification in the past.  The FICO score issue will be irrelevant to an extent if lenders treat the loan mods like short sales or foreclosures.

The bottom line is that the borrower having a loan modification completed is not repaying the loan as they contractually agreed. That's no different than a settled debt.

I'm a proponent of loan modifications under the right conditions but I think we, as an industry, need to be more upfront with people modifying their existing mortgages that it is a very negative issue from a future borrowing standpoint.
  • February 04 2010
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Go to www.makinghomeaffordable.gov for more

Racheli
  • February 04 2010
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Don't wait start the process again.
Is your housing expense mortgage insurance and Real estate taxes more than 31% of you documented gross income?
This is the 1st but not the only indication to qualifying.
I am working on a guide because so many are asking me how do I get them done.
Foreclosure effects it by 250-300 points
Short Sale effect your credit about 75 points
Modification if you continue to make payments on time and the lender only modifies the payment it shouldn't effect a lot maybe 10 points.
if the lender modifies the loan balance expect about 75 points.

Hope this helps you   Racheli

  • February 04 2010
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Profile picture for Justin Kennedy
it will effect your score as the creditor will enter verbiage that refferance account is under forbearance and/or terms have been modified, if modification is accpeted the trial period may report at late payments. creditors are creating coding which will flag account that were modified. i I perosonal have not seen this but i read an in-depth aritical about the purposed changes and it will be applied in the near future. the reasoning,  if homeowner modifies thier loan and in the future they want to refiance, the lenders will know based on coding, as Fannie Mae and Freddie Mac do not purchase loans that have been modified and/or changed in terms.
  • February 04 2010
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