By Gina Pogol
Mortgage Credit Problems Columnist
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I'm very sorry to hear about your difficulties. You have a couple of options.
First, check with several lenders for rates on an FHA streamline refinance. Even if you have bad credit or your income has dropped, you can get one of these. Because FHA already insures your home loan, it is willing to overlook falling house values, decreased income, and bad credit in order to help you lower your payments and decrease the risk of your defaulting on your mortgage. However, you need to move quickly because streamline refinance underwriting will be tightened up after the first of next year.
If you are already not making your payments or need a lower rate than you can obtain with a refinance, get the modification forms from your lender and apply for the FHA Home Affordable Modification Program (FHA-HAMP). In order to have a modification approved, make sure your application is complete and has all requested documentation (usually pay stubs, tax returns, and account statements) before sending it in. Keep in mind that modifications are voluntary, and lenders first determine if they can get more cash flow by modifying than by
foreclosing. If the lender is better off foreclosing, it is unlikely that you can get a modification.
Please fill out the lender's forms (many have them online) completely. Lots of modifications are stalled because the forms are incomplete. And it's critical that you don't exaggerate your expenses or play down your income--you have to qualify for a modification just like you would have to qualify for a loan. It seems silly that they could turn you down for not making enough money but they can and do all the time. The lender sees a modification as pointless and delaying an inevitable foreclosure if you don't make enough money.
After filling out the modification form, run the numbers through a mortgage calculator. If, by dropping your interest rate to 2% and possibly stretching your term to 40 years, your housing expenses can be lowered to 31% of your income, you have an excellent chance of being approved. If your total monthly payments (for your home, car, credit cards, etc.) exceed 50% of you income, you may be denied a modification or required to get credit counseling first. HUD has a list of housing counselors who may be able to help you with your modification if the paperwork is too confusing. It might be worth paying for some help with this--not a fly-by night modification company that makes big promises but a reputable counselor or an attorney.
Good luck and thank you so much for writing.