When you get a federally insured loan you do so in the hopes that you will be able to use the loan to purchase your home and to rebuild your credit and finances. Unfortunately this doesn’t always work out the way you hope. Due to events often beyond your control, there are times when the mortgage payment becomes too much for you to handle and you have to start looking at other options to make the payment, otherwise you’ll see a foreclosure looming in the distance. Nobody wants this – not you and not the lender. With FHA-HAMP (Home Affordable Modification Program) you may be able to adjust your mortgage and make it something you can afford.
Basics of FHA-HAMP
The FHA-HAMP was created as a way for homeowners who have experienced financial trauma to keep their home despite the change in their payment abilities. It is not a refinance and it is not going to benefit a person if they have spent themselves into a hole, meaning their inability to make the mortgage payment is entirely of their own choosing. No, this is there specifically for homeowners who are experiencing financial stress that has been caused by circumstances beyond their control. It’s an interesting concept because it is a combination of two things, the loan modification and an insurance claim, which makes it possible to free up some of the back funds of the mortgage that have not been paid while simultaneously reducing the payment.
To make it work the Federal Housing Administration allows you to make a partial claim on the insurance of the loan. This claim can only be made one time and it is paid to your mortgage lender to pay back the dollar amount that has been defaulted up to that point. This makes the loan current. Bear in mind that this amount will have to be paid back if you sell the home. Once the loan is current, it is then modified. Typically when a loan is modified the monthly amount is reduced as is the interest rate and the terms of repayment. You may end up extending the life of the loan in order to get that monthly amount down to an affordable payment.
Before the loan is established and set as permanent you will have a trial period of 3 months to determine whether or not you will be capable of making the adjusted payment. These payments need to be made on time. If you can’t meet the new requirements you will no longer be eligible for the modification.
How to Qualify for the Program
Qualification for the FHA-HAMP is pretty basic. You don’t have to have a minimum credit score or meet a certain financial obligation to apply. You do, however, have to prove that your income has suffered due to a hardship of some kind. Typical examples of the hardship include divorce (where one partner leaves and takes half of the income) and medical expenses due to a prolonged or extreme illness. You will only be able to qualify for this loan modification if you currently have a federally insured loan and if you’ve had this loan for at least 12 months. You also need to have made at last four full payments on the house in the last 12 months. The loan does have to be in distress, meaning you have already defaulted on your payments. In addition, you have to show proof of income. This isn’t available if you do not have a current job or any way to pay back the funds you are borrowing to make this modification possible.
Once the modification is complete it cannot be more than 31% of your monthly income. This 31% includes all payments on the home such as interest, taxes, principle, and insurance. Also, at the completion of the modification your debt-to-income payment with all of your debts cannot be more than 55% of your gross monthly income.
While this particular modification option is beneficial, it is not available for everyone and it tends to be considered as a last resort. It is only for owners of federally backed loans and only for loans where other mitigation options don’t apply or can’t be done. It’s also important to note that there is no credit score necessary for the modification, but any and all fees associated with the adjustment will need to be paid by the homeowner as the lender will not cover those expenses. However, if you are struggling to make your mortgage payment and are worried that you may lose the home, it would be worth discussing this option with your lender.