Homeowners are usually intimidated by foreclosure notices. According to a United Way study, more than 70 percent of homeowners fail to respond to lender communication when facing foreclosure due to the assumption that no other alternatives exist. However, the federal government offers an array of foreclosure prevention programs to help homeowners save their homes through its Making Home Affordable initiative.
Loan Modification
Loan modification is the process of restructuring your mortgage loan to create affordable monthly payments by, for example, adding the amount of your past-due balance onto your principal to bring your loan current or extending the life of your mortgage loan to reduce payments. Loan modification through the Making Home Affordable program is available to you if you're experiencing financial hardship and have the income to support modified payments. The current amount of the monthly mortgage payments must be more than 31 percent of your income. Documentation of your income is required when applying for mortgage modification through Making Home Affordable.
Refinancing
If you have a predatory loan, you can refinance through Making Home Affordable to reduce a high interest rate or replace loan repayment terms to match your financial circumstances. Predatory loans include any loan with terms that don't match your financial circumstances. For example, if you have an interest-only mortgage, you may find that the balloon payments due at the end of the interest-only term far exceeds your monthly budget. The existing loan can be replaced with a new loan bearing different terms when you refinance through Making Home Affordable. One caveat to refinancing this way is that you must be current on your mortgage payments and owe more than the home is worth to qualify.
Unemployment Assistance
If you're unemployed and qualify for unemployment benefits, you may qualify for a special type of forbearance called unemployment assistance. Forbearance occurs when your mortgage payments are temporarily suspended or reduced. Making Home Affordable uses the amount of your unemployment benefits to determine whether you're required to make partial payments during forbearance or wait until the end of the period to pay.
Second Mortgages
One benefit to pursuing a mortgage modification through Making Home Affordable is that second and third mortgages are automatically considered. In certain cases, second and third mortgages are eliminated. You must owe more than $5,000 on your second mortgage, and monthly payments should exceed $100 each month. Review the Home Affordable Modification program list of participating lenders to determine whether your lender offers modification assistance through Making Home Affordable.
Considerations
Applying for assistance through Making Home Affordable is beneficial as long as you have a source of income. Money received through unemployment benefits can be used to cover the cost of reduced mortgage payments, but claiming no income means you may be forced to use the Making Home Affordable relocation program instead. The program provides homeowners who are ineligible for mortgage assistance with $3,000 to relocate to a new home.
