The VA has many programs to help Veteran homeowners retain their property when they fall on hard times. The VA offers Veterans who have used the VA Home Loan Guarantee Program and subsequently fallen on hard times, the opportunity to modify their loans. The VA is sympathetic to those Veterans whose circumstances have changed forcing them to find more affordable living conditions. However, lenders that modify a loan for a Veteran who is still unable to afford to keep their home even after the modification are breaking the VA regulations for modified loans and are hurting the Veteran at the same time. Lenders should not modify loans for Veterans when the Veteran will still not be able to afford the new loan terms.
The following are some of the reasons the VA believes lenders have been modifying loans that should have been terminated:
- The lender does not properly evaluate the borrower's credit. If the Veteran is way over their head in debt in other areas, chances are the Veteran cannot afford even a modified payment.
- The lender allows the borrower to take a loan for too much money. If the veteran borrows more than the house is appraised for in order to pay for the costs associated with modifying their loan, then their payments are going to increase and the Veteran will be deeper in debt.
- The lender increases the interest rate as a result of bad credit or going rates at the time of modifying the loan. This only increases the payment for the Veteran and most loans that are modified at an increased interest rate are eventually foreclosed upon.
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All of these are examples of how lenders have modified loans for Veterans in order for the Veteran to avoid foreclosure but, in the end, the Veteran only ended up deeper in debt and went into foreclosure anyway. In order for a modified loan to be worth it for a Veteran, the Veteran must:
- Have had a temporary hardship that they have since recovered from. For instance, if a Veteran lost their job and was unable to make the mortgage payments for a few months, but then got a new job making at least the same annual income, a modified loan may be a viable option.
- Get a modified loan for payments at or lower than their current mortgage loan percentage rate. If the interest rate goes up, monthly mortgage payments go up.
- Have some equity in the home. Modifying a loan has costs involves cost that can be financed into the mortgage. If there is sufficient equity in the home, this could be an affordable solution.
It is important for Veterans to keep in mind that foreclosure is not the end of the world. Yes, many people will do anything to keep their home, but sometimes it is more costly for you and your family to try and hold on to a home you can no longer afford. If you are in a default or foreclosure situation contact your lender and your local VA Regional Loan Service Center for help and to find out what you can do.
VA Loan Specialists
We are the online VA loan specialists. If you need to modify your VA loan, tt is our goal to ensure that your VA home loan process goes as smoothly as possible. Let us help you get the process started today online. or call us at 800-405-6682 .