A Home Loan Modification can help you stop foreclosure and stay in your home. But if you’re like most homeowners, you’re probably wondering how it will affect your credit, and whether in a good or bad way. Unfortunately, there’s no single answer–it all depends on how far behind you are and the kind of mortgage loan modification you’ll be granted.
Best-case scenarios
Technically, since you’re not borrowing any money, a home loan modification won’t hurt your credit score. If you’re paying less in interest, you have a smaller debt burden. And since most lenders prefer an interest rate reduction, there’s a pretty good chance that a Home loan modification will improve your credit score.
The implications are even better if your lender forgives part of the principal, although this is less common. If they write off $50,000 from your loan amount, it will show up on your report as a smaller loan, which can increase your credit score.
The lender factor
Unfortunately, it doesn’t always happen that way. It also depends on how your lender reports the home loan modification to the credit bureaus. Many of them will consider it paid for less than the original amount owed, which will count against your score. If you’re already in foreclosure, the impact on your credit can be substantial. Of course, compared to a short sale or a foreclosure, a Mortgage Loan Modification is still the best way to maintain your credit standing.
Tax implications
One of the early problems with Loan modification is that the amount forgiven is usually taxable. That means if your debt is reduced by $50,000, the IRS views it as income and imposes the corresponding tax. This can catch homeowners off guard during tax season, as many of them don’t know the tax implications at the time of the modification.
To avoid such incidents, the IRS announced in 2007 that Loan modification would no longer be classified as “prohibited transactions.” This applied to all loans originated from January 2004 to July 2007, the peak of the sub-prime boom, and those due to adjust from January 2009 to July 2012. If your mortgage falls under these categories, you won’t have to file a 1099 declaring the change as taxable.
A loan modification is much like going to court: you can save your money and get a court-appointed lawyer, or you can invest in professional representation and get the best mortgage assistance. Your loss mitigation won’t happen overnight, but if with a capable Loan Modification Attorney, you can be sure you’re in good hands.
Watch the video related
Default: The Student Loan Documentary is a feature-length documentary chronicling the stories of borrowers from different backgrounds affected by the private student lending industry and their struggles to change the system. In 2005 private student loans were exempted of ALL consumer protections. No matter when their loans were taken, many borrowers now find themselves in a paralyzing predicament of repaying two, three or multiple times the original amount borrowed, with no bankruptcy …
Help answer the question
Will student loans stop me from getting a home loan?
I am about to gain a $13000 debt in student loans. In about 6 months we are applying for a home loan. Will that student loan be applied to my debt to owe ratio? Will it be a factor when applying for a home loan?
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#1 by Cindy J on October 19th, 2009
#2 by whiskeyman510 on October 19th, 2009
It won't hurt your credit score because you are not actually borrowing any money, you are just refinancing. In some cases it may actually help you credit score. Example your first loan was for 200K, you've paid off 50K, your new loan will be for 150K, that means your loan amount is smaller, and better for your credit. Also it will show on yor credit score that you paid off a loan. I just refinanced with a no closing cost loan( you pay a higher APR, but you will not pay any closing cost. ) I am paying 6 1/4, it's probably even lower now. The fed is supposed to lower it again, so I would wait a month or so to see what happens,
#3 by WPMixer on October 19th, 2009
See. The BRIGHT ones don’t need school. School needs non-goal reaching kids to prey on nowadays. Doing the math TRULY will SAVE you.
#4 by Wordpress on October 19th, 2009
The government should help bail out our student loans and then we could spend that money on a house, car, the economy. But instead they rather bail out huge companies that got us into this mess, giving that money to CEOs and their huge bloated paychecks, so they can buy yet another yacht. Then they expect us to work for nickels and dimes to try to pay back our student loans. What a crooked country we live in, as students can’t even file for bankruptcy anymore, unlike these companies.
#5 by Free Blog on October 19th, 2009
I hope it is a good job and you have a marketable degree. A degree is an investment not a right!
#6 by Mike on October 19th, 2009
As I understand it, the only people who can obtain a mortgage loan modification are those in the foreclosure process…..and even then it is not offered to everyone, depending on the circumstances.
#7 by ahsa on October 19th, 2009
Just because your collateral is gone does not let you of the hook for that second mortgage. You took the money from that second mortgage company with the promise to pay it back. Now they expect you to pay it back. Your credit record will not improve until you become current on this debt and bankruptcy certainly won't help to improve it. I hope the new job was worth it. Learn from this. No more home equity loans or second mortgages. If you can't afford to buy something without taking such actions you can't afford the item.
#8 by guzen on October 19th, 2009
or, do they just want to collapse the system and bring about reform to shape an agenda? BTW I’m an independent voter.
#9 by sony n on October 19th, 2009
#10 by nacao on October 19th, 2009
BTW, the most unbelievable part of all this– the USA is losing its most talented people to other countries, since its policies are tailored to enrich the already super-rich at the expense of the young, bright and ambitions working their way up, and the poor in general. AKA the definition of a banana republic.
The United States could quickly improve this miserable situation, just by passing the most basic reforms to correct these problems.
#11 by tleigh517 on October 19th, 2009
As a secured creditor, your lender will not be affected by bankruptcy. the only decision the bankruptcy judge has to make is if there is enough equity left after paying the mortgage for the other creditors to fight over.
You can always reinstate the mortgage by making up the back payments.
Otherwise sell the property. The foreclosure will take many months. Use the profits to make a new start. Reduce your cost of living and repair your credit.
#12 by catfur4u on October 20th, 2009
Banks don't seem to be very excited about doing loan modifications. Even though it's not in their best interest to foreclose on the home, I bet there are many more foreclosures each day than there are loan modifications. I've got a lot of foreclosures for sale (I'm a Realtor) that were from HSBC so I'm guessing the answer is no.
Have you considered a short sale?
#13 by boohoo1964 on October 21st, 2009
hello! sounds like we are in a little predicament here with the payments, with a 600 credit score it makes it so we can not go with a "stated loan" which is too bad, and with the x-wife continuasly making late payments you are correct, you will not be able to make your payments on time. i had just recently dealt with a few divorce refinances where the x husband was required by the court to get the place refinanced into his own name, and she was required to do the same with the properties she got to keep, it is probably too late for this now.
i'd say FHA but your expense ratio is probably going to be too high. you may be able to find a lender that can get you into the 9's. do you have any other bills besides your Mortgage? credit cards etc…. bank statements would definately be your best bet…… if husbands paychecks all go into the same checking as yours. send me a message if you'd like to see if there are any options. i've had people get denied by 3 or 4 people than come to me and i've found a home for a beneficial loan to them. i'd love to help, or help steer you in the right direction.
#14 by Blogger on October 21st, 2009
I dropped out of college because I realized it wasn’t worth the money. The work was easy in my engineering classes, but the amount of time and money I would have spent on college would not have sense financially. I am a cnc machinist now and doing fine. I never considered taking out a student loan because I understood the math.
#15 by WPBlog Shop on October 21st, 2009
no quite that easy. Your name would be tarnished for a long time.
#16 by David P on October 22nd, 2009
David, this is an investment property. You can short sale it, but you will still owe the rest of the money. The only way to not pay them back is to file bankruptcy, which will not likely be possible since you own other assets that can cover your loss.
This is not your primary residence, you will receive no special treatment.
#17 by psychic on October 22nd, 2009
Dumb, predatory policies, like these student-loan lenders who use legalized usury to force students into serfdom–THIS is what is driving Americans out of the country for good these days. The brain drain to the Netherlands, China, Germany, Argentina, Panama, Chile- it’s off the charts. Not just student loans but health care (don’t have a baby in the USA, the crooks in the industry will bankrupt you). So the best Americans now do their business in Dutch, German, Spanish- cuz they’re overseas.
#18 by rails on October 22nd, 2009
Amazing that the bought-and-sold US government has trillions of dollars to waste on idiot wars like Iraq, as well as corporate welfare for parasites in the banking and health care industries (so much for “personal responsibility” that so many anti-reform idiots like to spout about).
Yet when it comes to education– the best investment for a strong nation– it shafts students, then lets predatory lenders push them into insolvency. And we wonder why the USA is becoming a laughingstock with this?