Enjoy the journey to the destination.
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What Is A FHA Modification?
Enter the world of FHA modifications—an avenue that empowers homeowners by allowing them to roll any outstanding arrearages seamlessly into their existing loan.
Picture this: the mortgage term stretched to a more manageable 30-year horizon, coupled with the application of the current interest rate at the time of modification. However, before the green light is given to a modification, the servicer (you can learn more about services in our dedicated blog post) steps in to assess the borrower’s ability to shoulder the adjusted loan.
In essence, they scrutinize whether the modified mortgage payment hovers between 31% and 40% of the borrower’s gross income, acknowledging the fluidity of income. Should the borrower fall short in this evaluation, fear not! The servicer explores alternative routes, potentially diving into the intricacies of a partial claim—a topic we’ll unravel in greater detail later in this blog post. So, whether it’s seamlessly integrating arrearages or exploring modified payment structures, the FHA modification journey is a nuanced process with crucial checkpoints.
What Is A Trial Payment?
Embarking on the road to mortgage modification comes with a noteworthy checkpoint: the trial payment plan. Before the modification is etched in stone, homeowners are ushered into a 3-4 month trial period, where they diligently make the new modified payment. This trial phase is a crucial precursor to the finalization of the modification.
However, a key nuance demands attention—partial payments during this period won’t be applied to the current mortgage until the full payment is received. This process also wields an impact on the borrower’s credit, introducing an element of financial mindfulness.
Consider this scenario: if the regular payment is $800 and the modified trial payment is $600, making the initial $600 payment doesn’t cover the current obligation. The servicer, bound by protocol, can only apply the payment once the full $800 is in hand. The full $800 payment comes into play after the second trial payment is made, aligning with the procedural beat of the modification dance.
It’s worth noting that the FHA rides the waves of the current market interest rate, signifying that the rate may fluctuate—up, down, or hold steady—adding an additional layer of dynamism to the modification journey.
What Is A Partial Claim?
Enter the realm of financial support with the Partial Claim—a unique loan offered by the Housing and Urban Development (HUD). This loan serves a multifaceted purpose, covering arrearages, and fees, and potentially reducing the outstanding principal balance of the current mortgage. A standout feature? It’s interest-free, forming a lien against the homeowner’s property. The beauty of this arrangement is that repayment isn’t an immediate concern; the homeowner can defer it until the home undergoes a change in ownership, a refinancing occurs, or the first mortgage is settled.
Crucially, the partial claim holds significance as a lien against the property, a detail that homeowners need to bear in mind. An interesting twist comes into play when the first mortgage is paid off. In this scenario, settling the last mortgage payment requires the homeowner to clear the partial claim amount. It’s a nuanced dance between financial tools, ensuring that homeowners can navigate their financial landscape with clarity and strategic planning.
To illustrate this symbiotic relationship, let’s explore a hypothetical scenario where a homeowner is greenlit for both a modification and a partial claim:
Partial Claim:
Amount of delinquency in claim: $5,737.84
Legal fees and costs: $0.00
Principal Deferment: $14,618.52
Total HUD Partial Claim: $20,356.36
Modification:
Initial Principal Balance: $76,512.00
Principal Deferment: $-14,618.52
Delinquency Paid in Payments Applied: $-908.61
New Principal Balance: $60,984.87
Details Of New Monthly Modification Payment:
New Principal Balance: $60,984.87
New Principal & Interest Monthly Payment: $318.13
Escrowed Real Estate Taxes Monthly Payment: $210.10
Escrowed Property Insurance Monthly Payment: $79.58
Escrowed Mortgage Insurance Monthly Payment: $79.81
Total Monthly Escrow Payment: $369.49
Total Monthly Modified Mortgage Payment: $687.62
In this example above the mortgage has an interest rate of 4.75% and the term of the mortgage was extended out to a 30-year loan (360 months).
What Is Mortgage Insurance
Diving into the realm of mortgage insurance, it’s a financial safeguard designed to shield the lender in the event of a homeowner defaulting on the loan. This protective layer becomes particularly crucial with FHA loans, where elevated risks lurk due to factors like low credit scores and reduced down payments. Mortgage insurance steps in to help lenders manage and mitigate these risks effectively.
Here’s an interesting tidbit for homeowners: the possibility of shedding the mortgage insurance premium from your monthly mortgage payment exists. If you’re curious about whether you can bid farewell to this additional cost, check out this website link to explore the potential of removing the mortgage insurance premium from your ongoing mortgage payments. It’s a small but impactful step that can potentially lighten your financial load.
Currently Reading:
As a side note, I started reading Learning All The Time by John Holt. I am going to start homeschooling/unschooling my children in the fall and excited about it!
Stay tuned for my upcoming book called Big Banks Small Thinking! My new book is now published here!
Comments: Have you had an FHA Modification or Partial Claim done or in the process of one? I’d love to hear! Please comment below.
