Home Loan Advice

Are you investigating the new federal home loan modification plans? They promise much needed relief for homeowners who are dealing with mortgage payments and possibly facing foreclosure should they continue to struggle. There is a new federal program that will assist Americans homeowners in refinancing or modifying their mortgages.

This new program, Making Home Affordable, that was pushed by the Obama administration should help millions of people  attain lower monthly payments and also avoid foreclosure. But, are there any strings are attached to the program? What are the credit score implications? Are there any tax implications? How could it affect your monthly payments? Are there any scams associated with this program? Let’s take a look.

One of the first questions people ask about the federal loan modification plan if their credit score will be affected. In general, a refinancing plan doesn’t affect your score since it’s just a rewriting of the terms of an existing mortgage loan. What negatively affects your credit score is missing payments. Under the new federal housing relief plan, one of the terms is that qualifying homeowners can’t have missed a payment during the past year. So, if you’ve missed a payment, the new program won’t help you.

It’s still too early to tell how much impact the this federally sponsored mortgage loan adjustment program. There are no credit reporting guidelines in place for these home loan modifications. It’s not even clear if they will be reported at all. However, most people who’re applying for this program will have had some financial problems and missed credit card or car payments will have a negative impact on their credit report. But, in the long run, if a loan modification puts you on the right track financially your credit score will begin to improve. Just make sure that you have a sound financial plan for your own recovery, such as using the savings on your mortgage loan to pay down other debts..

One potential problem in the federal housing relief plan is that your payments might be more. For example, if your home loan is still at a low introductory rate it isn’t out of the question that you may have an increased home payment after the adjustment. However, the up side is that you will avoid any interest rate spikes that are common with subprime adjustable-rate mortgages

Mortgage lenders who’re participating in the Making Home Affordable program are required to provide you with a “good faith estimate” which will include your new interest rate, monthly mortgage payment amount and the total cost of the loan. You should compare the numbers of the refinancing offer with your current loan to insure that it will be and improvement for you.

Another question is when should you apply for this mortgage loan adjustment. Mortgage rates right now are at historic lows and aren’t likely to go much lower but are more likely to rise later in 2009 and into 2010. It wouldn’t be a good idea to wait. Also the Making Home Affordable program expires on June 10, 2010 so you should bear that in mind as well.

As for the tax impact, any charges associated with refinancing a mortgage are currently tax deductible. However, some fees, such as an appraisal or home inspection, are not. Neither are certain attorney’s fees. Also, a lower interest rate will reduce your mortgage interest deduction so you may need to adjust your withholding to account for this change as well.

Should you not qualify for the federal loan modification program you can attempt to negotiate your own refinance or modification of your loan. Many lenders are willing to work with you to help avoid a costly foreclosure. I have mentioned in other articles on this site how to handle these negotiations.

Beware of third party home loan adjustment companies. While some are legitimate there are plenty of scammers out there. Some even operate using the federal loan modification as a cover by using official sounding names or invoking President Obama’s name. Don’t pay any upfront fees or fall for other scams like this. Remember that home loan assistance is always available for free from government approved housing counselors.

I hope this article has helped answer questions you might have about the new federal home loan modification plans.

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