About Loan Modification
Common Terms
Repayment plan:
The homeowner will make the regular mortgage payments plus a little extra to cover delinquency payments and fees.
• Interest rate reduction:
Refinancing your mortgage interest rate to a lower rate, thus lowering your monthly payments.
• Extension of loan term:
Extending the term of the loan, say from 30 years to 40 years, to lower the monthly payments.
• Conditional forbearance:
The borrower is allowed to make lower payments for a limited time, typically three months.
• Stay on foreclosure:
A temporary, set period of time that gives homeowners protection from foreclosure so they can recover and resume payments.
• Principal deferral:
The lender defers part or all of the principal payment, thus lowering your monthly payments.
• Short sale:
The lender agrees to sell the house for less than the outstanding mortgage amount and accept the loss.
• Deed in lieu of foreclosure:
Homeowner gives his home (the deed) to the lender in exchange for the lender canceling the loan. The lender forgives any deficiency in the loan that isn't covered by a future sale.
What is target debt-to-income, or DTI, ratio?
This is the ratio between how much you owe each month on personal debt and how much you earn. It calculates the percentage of debt you are carrying in relation to how much money you are making, in order to give the lender an indication of how much additional debt you can take on.
Add up your fixed monthly expenses such as your car payments, minimum credit card payments and any other regular debt obligations, such as monthly child support or student loans (you don't have to include bills for things such as groceries or utilities). Add your expected housing payments (your mortgage payments plus, for example, private mortgage insurance, homeowners insurance and property taxes) and divide the total by your gross monthly income. Lenders typically say a DTI ratio should be no higher than 38 percent.
