There are various factors to consider before you can refinance a mortgage that has been modified. After all, your loan modification was supposed to mitigate the need for a refinance and avoid the costly sum that comes with it. Your lender will look at these conditions to evaluate the possibility of a refinance.
Improved Income, Equity
Loan modificationsare typically granted to individuals who can prove that they are facing a financial hardship which may affect their payment capability for the loan owed, yet who could still afford to pay given that the loan is modified in such a way that the resulting new payments will be lowered. If the said setback has only been temporary and you have now recovered financially, you may be allowed to refinance your mortgage and renew your interest rate and repayment terms. In this case, your lender might require you have a total expense that does not go beyond 40 percent of your monthly income. Or, if you plan to take out cash from your home’s equity, you may do so given that you have a 25 percent equity on the property. You also have to demonstrate that your income is higher than it was during the modification.
Favorable Modification Conditions
Modifications in which the lender took the generous risk of significantly reducing your principal payments in order for you to adjust to your hardship without losing your abode may have a hard time getting refinanced. Typically in these kinds of arrangements, you will be required to pay back the amount that the lender wrote off if you refinance or sell the property. This is written in the modification agreement and helps lenders mitigate losses.
On the other hand, if your modification was only tweaked on interest reductions or the loan’s amortization, you have more chances of getting a refi.
Most likely, if a financial setback is the main cause of your loan modification, you have missed on your home loan payments before your mortgage was modified. Missed payments reflect badly on your credit report and will plague your record for a year or two. A delinquent mortgage payment is a red flag for lenders and would most likely result to your application being turned down. When you refinance, lenders ask for your credit record and require that you do not have delayed or missed payments for the past 24 months. If this is the case, you might have to wait for a significant time for your credit to recover before you can apply for a refinance and get approved.
Refinancingafter a modification may be difficult but it’s sure not impossible. Time and some improvements on your financial condition could do good to your likelihood of getting approved. Improvements like a higher income or a recovered credit score, or even the appreciation of your home’s value could help you get that much needed refi approval.