FHA Loan Modification
WHAT IS
FHA Loan Modification
Created under the direction of the Federal Housing Finance Agency (FHA), FHA Loan Modification is designed to assist homeowners who are to make their monthly mortgage payments. The program is designed to change the terms of your current home loan to make the monthly mortgage payments more affordable.
In essence, a loan modification reduces your monthly principal and interest payments by extending the loan term and reducing the principal balance or interest rate. And most importantly FHA Loan Modification is intended as a long-term foreclosure prevention solution.
WHY
FHA Loan Modification
The program’s simple requirements are matched with a great set of benefits appealing for all who qualify.
- No minimum income requirements
- Funding available for home repair or improvements (FHA 203k loans)
- No prepayment penalties
- Gift funds allowed for the down payment
- Options for seller-paid closing costs
- Fixed- and adjustable-interest rate options available
CRITERIA OF
ELIGIBILITY
You may be eligible if you meet all the following criteria:
- You have only one FHA-insured loan
- You’re experiencing a permanent financial hardship such as reduced income, medical expenses or divorce
- You live in the house, unless you left the property for the same reason you can’t make payments
- The house wasn’t purchased for rental or used as rental for more than 18-months
- You’re able to offer a clear title to the property with no liens from any other parties
- You’re unable to modify your current home loan, or don’t wish to remain in your house due to other circumstances, such as a job relocation
- Have a FICO score of 500 to 579 with 10 percent down, or a FICO score of 580 or higher with 3.5 percent down.
- Have verifiable employment history for the last two years.
- Have verifiable income through pay stubs, federal tax returns and bank statements.
- Use the loan to finance a primary residence.
- Ensure the property is appraised by an FHA-approved appraiser and meets HUD guidelines.
- Have a front-end debt ratio (monthly mortgage payments) of no more than 31 percent of gross monthly income.
- Have a back-end debt ratio (mortgage plus all monthly debt payments) of no more than 43 percent of gross monthly income (lenders could allow a ratio up to 50 percent, in some cases).
- Wait one to two years before applying for the loan after bankruptcy, or three years after foreclosure (lenders might make exceptions on these waiting periods for borrowers with extenuating circumstances).