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Those in the process of purchasing a new home are all too familiar with loans through mortgage lenders. However, if you’ve had a mortgage for a while and have fallen on hard times, you may want to know about loan modification options.

Loan modification options are a means by which one or more of the terms of a mortgage loan are permanently changed. This allows the loan to be adapted to enable the borrower to maintain their loan and make payments they can afford.

Some home lending and financial experts consider loan modifications to be a win-win situation. This is particularly true for those in the following situations:

* More is owed on the house than it is worth.
* Payments are in arrears by more than one month.
* Foreclosure is a distinct possibility or the proceedings have already begun.
* Better terms and a payment you can afford are possible.
* You can avoid foreclosure and possibly damaging your credit.
* The bank considers it a great situation because they continue to get paid which allows them to avoid having to take other, costlier alternatives.
* It is a fresh start which may be needed.

Banks or lending institutions may consider any of the following loan modification options:

They can extend the length of your term, meaning they can stretch the loan by adding an additional 10 years to the loan. This would cause the payments to be adjusted and should bring them down to a reasonable amount.

They can also lower your interest rate. By reducing the interest rate, you’ll also reduce the payment which could help you catch up as well as afford the new payments.

Another option would be to change the loan from an adjustable rate mortgage to a fixed rate mortgage. This means instead of your payment fluctuating with the national prime rate, you would have one interest rate for the duration of the loan.

They may choose to reduce your loan balance, also called a Short Refinance. This option is used by financial institutions to forgive the difference of principal balance owed above what the home is worth, which enables you to refinance your loan at current rates.

Deed in Lieu of Foreclosure is another loan modification option. With this option the lender chooses to accept the house back on a particular date rather than foreclosing on the house. Some lenders will help homeowners in this situation relocate to a new home by helping with expenses.

Forbearance is the last loan modification option, which may see the lender offering to let the borrower skip one or more payments without penalty, or make partial payments for a specific length of time.

All of the above loan modification options can seem like a miracle for homeowners who have fallen on hard times. After having one of these options applied to their own situation, expect to be able to breathe a sigh of relief. If this a loan modification option sounds like it would help you, talk with your mortgage holder to see what options are available for your situation.

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Becoming a homeowner is one of the happiest events in many people’s lives. But when times get tough, it can be difficult to scrape up the money to pay mortgage payments each month. If you’ve accumulated enough equity, you can sell your home at a profit and get on with your life. But what happens if you owe more on your home than it’s worth?

Many homeowners face the heart-wrenching decisions associated with these problems. Some choose to negotiate with their lenders, hoping for a solution that will allow them to catch up on payments and keep them in their homes. Others feel hopeless, believing that there is no chance that they will be able to keep up payments even with help. Those who fall into this category often choose to walk away from their homes.

Losing your home brings forth a deluge of emotions. It’s a sad event, and it may also make one feel angry or ashamed. It’s certainly not ideal, yet desperate homeowners often feel that they have no other alternative. But in most cases, there is help available.

Talking to your lender could be more fruitful than you might imagine. With the abundance of foreclosures going on today, many are willing to go to great lengths to help homeowners stay in their homes and meet their obligations. Paying extra each month to catch up on payments is one option, but it may not be the only one offered. The lender may be agreeable to bringing a homeowner back to current status and accepting lower payments for a longer period of time, or even lowering interest rates to reduce payments and the amount owed.

If your lender isn’t helpful, there are non-profit organizations that can help. They employ trained negotiators that know what it takes to persuade lenders to work with borrowers. They can also inform you of your legal rights, which is something that lenders may hesitate to do. These organizations usually charge nothing for their services.

The Consequences of Walking Away

If you do end up walking away from your home, there are certain consequences that you should be aware of. One of the most significant is a foreclosure’s effects on your credit record. You can expect your credit score to drop by a few hundred points, seriously harming your chances of getting any kind of credit for several years. In most cases, the foreclosure itself remains on your credit report for 10 years.

There’s also the chance that you could be held liable for the difference between the profit the lender makes from your home’s sale and the balance of your mortgage. Lenders often sell homes to the highest bidder, and if that bid doesn’t satisfy the mortgage amount, they will want to recover the rest. In some cases a lender may agree not to pursue payment if the borrower agrees to a deed-in-lieu of foreclosure or a short sale, but they are under no legal obligation to do so.

Sometimes, walking away from your home is unavoidable. But in most cases, there are alternatives available. If you find that you’re in danger of losing your home, talk to your lender or a professional immediately. You might find that your chances are better than you thought.

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Owning a home has long been a major component of the so-called “American Dream.” It’s true that home ownership is fulfilling and liberating. But as anyone who is making mortgage payments can tell you, it doesn’t come cheap.

During the good economic times, banks practically handed mortgages out like candy. This made owning a home accessible to more people, but it also led to an alarming number of foreclosures. Today, more consumers than ever before are aware of the pitfalls of buying more home than they can afford.

The amount of home an individual, couple or family can afford depends on a number of factors. These include:

* Income – Most prospective home buyers are aware that their income plays a significant role in how much home they can afford. Simply put, if you don’t make enough to pay your mortgage payment each month, you can’t afford the house. If it were as cut and dried as that, settling on a price range would be relatively easy. But there are more things to consider.

* Down payment – A key factor in how much home you can afford is how much of a down payment you can make. Most conventional loans require a down payment of 20% of the purchase price. That’s not an amount that most people can save up in a few months’ time. Some types of loans allow for a lower down payment, or even none at all. But in exchange for that concession, you’ll have to pay private mortgage insurance (PMI) and possibly a higher interest rate.

* Other debts – All other things equal, two borrowers who have different amounts of debt will need housing in different price ranges. Most experts agree that your total amount of debt should not exceed 36% of your income. So while someone with no other debts could afford to spend the entire 36% on housing (although that’s not recommended), someone with a 15% debt-to-income ratio could only afford a mortgage equal to 21% of his income.

* Interest rate – When interest rates are low, one can afford a larger mortgage than when they are high. This is something over which we have no control. But if you are considering buying a home and interest rates are lower than the norm, moving forward now instead of waiting could be to your advantage.

The 36% debt rule is known as your back end ratio. Your front end ratio is also worth considering. This rule dictates that your mortgage payment and other housing expenses, including homeowners’ insurance and real estate taxes, should add up to no more than 28% of your gross income. This makes for a quick way to estimate how much of a mortgage you can afford. Simply multiply your monthly income by .28 and you’ll have a rough idea of how large of a payment you can afford each month.

Living within one’s means is always important, and that’s especially true during uncertain economic times. Taking the time to carefully consider how much you can afford to spend on a home could save you a great deal of anguish in the future.

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Reverse mortgages have existed for a few decades, but only recently have they received a significant amount of press. Touted as a way for senior citizens to utilize the equity in their homes, reverse mortgages have become increasingly common. But is a reverse mortgage right for you?

As the name suggests, a reverse mortgage is pretty much the opposite of a regular mortgage. Instead of taking out a loan to buy a home, you put up your home as collateral and receive money. But unlike a home equity loan, you do not have to make monthly payments. No payment is due until the borrower dies, sells the home or moves out for twelve months or more. When one of these events occurs, the loan must be paid in full, including accrued interest. This is accomplished by selling the home or obtaining a traditional mortgage.

The proceeds of a reverse mortgage may be distributed in a few different ways. The borrower can take a lump sum payment. He can request a line of credit to use as needed. Or he can elect to receive monthly payments. Some lenders will even allow you to receive payments by two different methods, such as half in a lump sum and the other half as monthly payments.

Requirements for a Reverse Mortgage

Unlike other mortgages, a reverse mortgage does not subject the borrower to income requirements. Since there are no monthly payments, there is no need to verify income. The amount a homeowner is eligible to borrow is dependent on the equity he has in his home.

There are, however, a few requirements that must be met. These include:

* The borrower must be at least 62 years of age. If there is a co-owner who is under 62 years old on the home’s title, that person’s name must be taken off before the loan can be made.

* You must have a certain amount of equity in your home. If you have an existing mortgage, it must be paid off. But you can use the proceeds of the reverse mortgage to do this.

* There are certain criteria that the home must meet to qualify. The owner must live there, and if it’s a multi-family dwelling, there must be four units or less. Manufactured housing must meet certain requirements to qualify.

* Before a reverse mortgage can be made, the borrower must undergo counseling approved by the Department of Housing and Urban Development (HUD). The purpose of this counseling is to make sure the borrower understands how the reverse mortgage works. When completed, the borrower receives a certificate that must be presented to the lender.

A reverse mortgage can provide funds to senior homeowners to use any way they choose. They do not have to make monthly payments, and they can remain in their homes for the rest of their lives or until they choose to move out or need to do so for long-term care. But it’s very important to understand all of the implications of a reverse mortgage before making a decision.

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Owning a home is a goal to which many of us aspire. But unless you can afford to pay for a house in cash, you’ll probably have to take out a mortgage. This has scared away many a potential homeowner. And those that do go forward often view the mortgage as a necessary evil.

Debtors often consider paying off their mortgages early. This can be a good economic strategy, but there are some disadvantages to it as well. Here are some things to consider if you want to become mortgage-free.

Pros

Paying off your mortgage leaves the lender with no claim to your property. Your home is truly yours and yours alone, and you don’t have to worry about foreclosure due to the inability to make payments. You simply can’t put a price on that feeling of security.

The more quickly you pay off your mortgage, the less you will pay in interest. Any extra principal that you pay each month is that much less that you will have to pay interest on for the remainder of the mortgage term. If you consistently make extra principal payments, it could save you thousands of dollars over the life of the loan.

Once you’ve paid your mortgage in full, it’s like having several hundred dollars in extra income each month. You’ll have more money to put toward retirement, remodel your home, or spend any other way you’d like.

Being without a mortgage gives you greater freedom. You could sell your home and pay cash for another one. You could build up extra savings and pursue a new career. Having your mortgage paid off may even open the door for early retirement.

Cons

When you pay off your mortgage, you can no longer take tax deductions on the interest paid each year. For those who itemize deductions, this can cause a major change in your tax situation.

With the right investments, you could come out ahead by paying the minimum on your mortgage each month and investing the rest. If an investment offers returns greater than your mortgage interest rate, you would theoretically be better off going this route. It’s important to note, however, that most investments with higher returns are not guaranteed.

The more money you’re paying toward your mortgage, the less you’ll have for other expenses each month. You may have to put off buying a new car or saving for your children’s education. Are these things you can live with?

Putting money into your home makes it harder to access funds when you need them. If the need arises you could sell your home, but that rarely happens as quickly as you would need it to in an emergency. You could also take out a home equity loan, but that defeats the purpose of paying off your mortgage early.

Paying your mortgage off early comes with some opportunity costs. But for many homeowners, the benefits far outweigh the disadvantages. They can save money without having to be savvy investors, and they get the peace of mind that comes with being mortgage-free sooner.

With the right investments, you could come out ahead by paying the minimum on your mortgage each month and investing the rest. If an investment offers returns greater than your mortgage interest rate, you would theoretically be better off going this route. It’s important to note, however, that most investments with higher returns are not guaranteed.

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For a long time, it seemed like banks were handing out mortgages on silver platters. Even those with not-so-good credit could find a lender who would work with them. This seemed like a dream come true for those who wanted to become homeowners. But when the housing market went south, lenders began to be more cautious.

Today’s housing market is a far cry from what it was just a couple of years ago. Fewer lenders are willing to serve those who do not have excellent credit scores. Those who are fortunate enough to get a mortgage without perfect credit have to contend with higher interest rates.

But looking for a great mortgage deal is not a lost cause. For those with good credit, there has hardly been a better time to get a mortgage. Interest rates are low, and lenders are willing to compete for the business of well-qualified borrowers. Here are five things you can do to get a good deal on your mortgage.

1. Carefully examine your credit report. If there are errors, report them to the credit bureaus. If your credit is less than perfect, start working on building it up right away. Catch up on delinquent accounts, and make all payments on time for a few months. These measures can make a big difference in your interest rate.

2. Compare rates online. You can find rates for many lenders on the Internet, and some websites allow you to compare rates and terms side by side. Even if you don’t like the idea of borrowing from an online lender, you can find rates for banks with branches in your area. At the very least, this will give you an idea of what to expect.

3. Visit some lenders in person. Most offer several different programs, so it pays to sit down and discuss your needs and finances with them. Determine the best deal a lender can offer you, and get it in writing. Then visit more lenders and compare results.

4. Don’t forget the local banks. Smaller banks tend to minimize their losses by only working with highly qualified borrowers. This means that they can afford to offer lower interest rates.

5. Remember that there’s more to a great mortgage deal than a low interest rate. Make sure you understand the terms of the loan, especially when it comes to other costs such as points, closing costs and private mortgage insurance (PMI). If these costs are high, they could negate the effects of that stellar interest rate.

Getting a good deal on a mortgage can be a time-consuming task. But the rewards may be measured in thousands of dollars. In today’s housing market, it literally pays to shop around.