Toastboy’s Tech Tips

Loan Modification and FHA Loans What you need to know

There are a few options that homeowners may have when it comes to being upside down on their house.

First look to a trusted mortgage broker to ask about

• FHA loan.
• Loan Modification

An FHA loan is a government backed loan , that comes with some caveats. Firstly you have to meet the requirements the have set forth. These are not limited to when you took out your mortgage, or the balance, or the type of loan, and property value. The FHA loan program also limits you when it does become time to sell.

If you are approved and switch into an FHA loan you are limiting your equity greatly as the first year you will have to ante up or surrender all of the profit after fees and commisions to the FHA agency. Ouch! After the first year this drops %10 per year. So the second year you ante up 90% of the profit after fees to them. If you keep the house for more than 5 more years the amount you are giving up is %50 from then on.

But if keeping your house is more important than not being forced into foreclosure because of a payment adjustment you just cannot afford. The FHA option may be worth your while.

The second option is Loan Modification or a Principal Reduction to your mortgage.

With a loan modification you have to enlist the powers of attorneys to fight on your behalf. And this is usually done through a mortgage broker or bank that charges you an application fee just to see if you are even able to do this.

Once they ( mortgage broker / attorneys ) feel that you can get this done, there will be a hefty retainer for them. But if this hasn’t scared you yet, the upside is that the bank will forgive debt by reducing your principal balance down to what your home is currently worth, and put you into a new rate and term and hopefully you can still afford the new monthly payment.

If you can then the upside is that you get too keep your house. YeeHAW! and you have a managable monthly payment. AND this is the big one. You can keep any equity that may be seen in the future and share it with no one.

There are tax issues to be aware of but you can check with the IRS on this. As debt forgiveness comes with a 1099-c and is usually considered as income on your behalf.

Look into the Mortgage Forgiveness act of 2007 and you may find that your are not required to claim this as income at all. At which point you won’t have to pay taxes on unseen money.

I am not a lawyer, or an accountant, or a mortgage broker. Please do your own research on both of these options. I am only stating what i have found out through my own due diligence.

Good luck to all who need this information. I am only trying to help save you some headaches and give you some options when you think there are none.

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