What are my chances of a loan modification?
I usually hear this question three to four times a week. And while most lawyers and loan modification agencies want you to believe banks are giving out modifications left and right. The truth is banks for the most part are just moving the past due balances to the arrears and reducing the interest rate for 5 years. What if you are upside-down, how long will it take for you to make your money back?
Well, I read an article recently that mentioned that most homes have lost about 30% value in South Florida. Before the big housing boom, most areas appreciated about 3% a year. So lets say for the sake of argument, the housing market stabilizes this year and next year your house starts appreciating again after dropping 30% in value. How long will it take for your property to be worth the amount of money you owe using a 3% appreciation rate. You guessed it, about 10 years. That is not taking into account if the market remains flat for 2-3 years like most experts are predicting.
So at the end of ten years your property will be worth the amount of money you owe according to this article and you would have paid a whole lot of interest. I use this example often to illustrate that even if the bank accepts to modify your loan, it may take a long time for you to see a return on your investment.
Going back to what are your chances of a loan modification. It really all comes down to your DTI, debt to income ration. If you can prove you make enough money to cover your expenses and reduced mortgage and you have a valid hardship (divorce, medical, layoff, etc…), then you have a very good chance to be approved. Just don’t expect the results that everyone is promising.
Till next time,
Ever