Modification with equity

ericrmtpr

LoanSafe Member
Feb 25, 2020
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Hello,

I apologize in advance if this is posted in the wrong section.

I just had a question about applying for a loan modification. I currently have a conventional loan serviced by US Bank with a decent amount of equity; I paid $75,000 as a down payment when buying the house, and currently owe about $251,000 on the mortgage while the house is valued at around $335,000. I bought this home in October of 2019.

Payments have recently become very tight due to a change in my situation and I was considering a modification to lower my monthly payments. I'm current on the loan as of now. My question was, will the banks generally approve modifications if there is positive equity in the home? I thought I had heard that sometimes if it is in the bank's best financial interest to foreclose rather than modify, they will deny the modification but I'm not sure if that is the case. Also, is it too early to apply for a loan modification since I've only had the mortgage for roughly 6 months? I wouldn't actually plan on applying so soon as I think I can keep it current for at least a few more months before things possibly get worse. My main concern however was whether or not there would be any likelihood in the bank approving my loan modification request since there is positive equity in the home.

Thanks for your time, any tips or suggestions would be greatly appreciated!
 

Javagold

LoanSafe Member
Mar 2, 2012
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The only equity you have in the house is basically your down payment. I would try and get a HE loan or line of credit and get your $75k out of the house as quickly as possible.. Then you can see if your situation has improved or not and make decision based on that as well as having you hard money deposit back in your hands. (I like to call it a no middle man reverse mortgage).
I wouldn’t count on a modification being approved or even helping you so soon after purchasing.
 
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ericrmtpr

LoanSafe Member
Feb 25, 2020
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You bring up a good point - just to clarify, I would NOT let the house go to foreclosure, no matter what. I'd do whatever I have to and/or die before letting that happen. I actually hope to invest the $75k down payment and sell the property later on down the road for more of a profit after some years, allowing the property value to increase to grow my $75k investment.

Also, I wouldn't anticipate applying for a modification before one year had elapsed from first obtaining the mortgage. I actually was able to do a modification on a prior property I owned some years back right around one year after getting the mortgage, so I would imagine the 1-year timeline would still be okay.

My main worry would be regarding the equity and whether or not that would factor into the bank's decision making process (my last modification didn't involve any equity, so I'm unsure how that plays into the situation).
 

isisis

LoanSafe Member
Jun 22, 2010
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Equity should not be a problem in determining whether you get a modification. Lots of people with equity get modified. The fact you've only had the mortgage six months might be a problem though I couldn't say for sure.
 

OneHugeMess

LoanSafe Member
May 30, 2016
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One thing I will tell you right now, is... if there was anything, odd or unkosher about your loan application, or documents -- I wouldn't proceed forward with applying for a Modification.

Just like if you defaulted within the first year of the loan, applying for a hardship program is going to trigger a Fraud Review by the original lender, and servicer of the loan. They are going to re-underwrite it, look at all the documentation submitted, and try to see where it all went wrong. It's also very likely, that the original lender that made the loan, is going to have to repurchase it from the investor, and take a substantial loss on it. I tell you this, just so you're aware. If a loan officer or realtor lied about your income, in the application - someone may very well get into trouble.

To answer your main concern, the LTV will be a factor in some of the decision making, among many. I will say, this loan may be more difficult to modify, just because there will be a definite loss. That doesn't mean it can't be done.
 
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ericrmtpr

LoanSafe Member
Feb 25, 2020
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Why would there be a loss? In the prior modification I had done, they took a chunk of principal and set it aside to recalculate my monthly payments at a lower rate - the chunk of principal wasn't forgiven, it was just set aside (with a lien) and I had to pay it back upon selling the home, so there was no loss for them. I was hoping to do something similar in a future modification.

There was no lying about income, but I have student loans that required me to have a co-signer. The co-signer, however, does not live in the property or pay any of the mortgage and everyone was aware of that at the time of purchase - the property is listed as "right of survivorship and not as tenants in common" because I am single and had a family member co-sign with me. I wouldn't imagine their income will be considered when applying for a modification, but I could be wrong.