Loan Modification: Important Industry Terms You Should Know

Most homeowners are generally familiar with many of the basic mortgage terms. Terms like mortgage amortization, APR and refinancing programs are pretty common knowledge. When you introduce some of the terms associated with loan modfication, most people aren’t as knowledgeable. That is one of the primary reasons that the term loan modification is so confusing for many homeowners who are looking for a loan modification attorney to help them.
Fortunately, you don’t have to be a mortgage expert to learn enough about loan modifications to make a good decision. Below are just a few of the important terms related to loan modification.

Basic Terms For Your Mortgage Loan Modification

Debt-to-Income Ratio: Also sometimes referred to as DTI. Your debt-to-income ratio is the amount of money that you pay towards your total debts compared to your income. According to FHA guidelines, your DTI ratios should be 29/43%.

Deed-in-Lieu: Also sometimes called Deed-in-Lieu-of-Foreclosure. This means that rather than a foreclosure, the lender agrees to accept you to deed the property back to them in exchange for not foreclosing on the property.

Fair Market Value: This is what the lender will arrive at where they will be willing to sell the hosue in a short sale. Fair market value is typically determined by a Broker Price Opinion which is basically a quick appraisal done by a real estate agent.

Foreclosure: Depending on what state you live in, the foreclosure process will be different.  Generally speaking, a foreclosure is where your property is sold and the proceeds go to the lender which will allow them to recover part of the loss on your loan.

Forbearance: In a forbearance agreement, your lender agrees to revise your payment plan to help you hopefully get current and catch up on any arrears in payments. Forbearance may involve any number of options including lowering your monthly mortgage payment or even agreeing to suspend your mortgage payment for a period of time.

Principal Balance Reduction: Principal reductions are one of the least popular options because of the direct loss to the lender when the directly reduce the amount of money that you owe on the principal balance of your loan Principal reductions are not usually the lenders favorite option for a loan modification and they will usually try other options first.

Short sale: Short sales are a common alternative to foreclosure.When a home is "short sold" it means that the home is sold at less than the balance of the mortgage and all proceeds go to the lender. Just one of the reasons that many people choose to short sell their home vs let it foreclose is that you can buy a home again in a shorter time period.