Loan Modification: Important Terms To Know

Most people who currently own a house are generally familiar with most mortgage terms.  Terms like fixed rate, interest rates and refinancing are pretty common knowledge. When you introduce some of the terms comonly used with loan modfication, most people aren’t as familiar with them.  That is one of the main reasons that the term loan modification is so confusing for many homeowners who are looking for a loan modification attorney to help them.

Fortunately, you don’t have to be a financial expert to learn enough about loan modifications to make a good decision. Here are some of the key words to be aware of when speaking about loan modification.

Debt-to-Income Ratio: Also called DTI. Your debt-to-income ratio is the amount of money that you pay towards your total debts compared to your income. FHA guidelines state that your DTI guidelines should be 29/43%.

Deed-in-Lieu: Also sometimes called Deed-in-Lieu-of-Foreclosure. This means that rather than a foreclosure, the lender agrees to accept you to deed the property back to them in exchange for not foreclosing on the property.

Fair Market Value: This is what the lender will arrive at where they will be willing to sell the hosue in a short sale. FMV is usually arrived at by ordering a Broker Price Opinion (BPO) from a local real estate broker.

Foreclosure: Depending on what state you live in, the foreclosure process will be different.  Generally speaking, a foreclosure is where your property is sold and the proceeds go to the lender which will allow them to recover part of the loss on your loan.

Forbearance: Forbearance is different than loan modification in that it is only a temporary solution and not a permanent one. Forbearance may involve any number of options including lowering your monthly mortgage payment or even agreeing to suspend your mortgage payment for a period of time.

Principal Balance Reduction: When a lender agrees to reduce the amount of money that you owe as a way to reduce your mortgage payment, this is called a principal reduction. Principal reductions are not very popular with lenders and most will offer a different type of loan modification first.

Short sale: A common alternative to foreclosure.When a home is “short sold” it means that the home is sold at less than the balance of the mortgage and all proceeds go to the lender. Just one of the reasons that many people choose to short sell their home vs let it foreclose is that you can buy a home again in a shorter time period.