The fascinating thing about real estate investing is how many aspects there are to it. One of the latest new trends is loan modification, and investors can finally begin to take advantage of this opportunity. Over my next several posts, I will address what a loan mod is, how it can save you money on your current investment properties and how you can qualify for a loan modification.
So what is a loan modification exactly?
Let’s talk first about what it’s not. It’s not a refinance. It’s not a new loan at all. Like its name implies, a loan modification alters the existing loan, lowering the interest rate, changing the payment terms, sometimes even reducing the principal of the note. This new program can help to compensate for some of the extreme drops in value that, in combination with the huge number of ARMs (adjustable rate mortgages) that have come due, has created a market that is either the best or worst (depending on your investments) we will probably see in our lifetimes.
Why not just refinance?
Most of the people who ask that question haven’t tried to refinance lately. Refinancing is absolutely still an option for some, but the credit scores required now are higher, the restrictions are more stringent, the loan to value has gotten extremely low — especially for investor loans — and stated income? Don’t even bother putting your app in. So where does that leave a typical investor whose equity is now cut in half and whose payments are getting harder to make each month?
Loan Mod 101 – Just Do It
Don’t try to understand too much about the criteria for loan mods. It’s all over the map. The company I work with, Accelerated Loan Mods, just sent over some interesting stats on 3 new accepted loan mod packages: 2 of the loans were current, 1 was behind; 1 got a drop in the interest rate down to less than 1% FIXED, 1 was dropped 2 points, and the third was dropped to a 5 year staggered ARM; 2 of the loans did not drop in principal and 1 did. Interesting, right? What was the rhyme or reason behind it? I don’t know, and I doubt the attorneys who did each package could tell you either. It’s like electricity – we don’t know exactly how it works (most of us don’t, anyway) but when we flip the light switch, the light goes on!
Next week, we’ll discuss all the basic questions that come up around loan mods, so stick around!