If you’d like to sell your Wisconsin home but went through a loan modification, you’re probably wondering if that’s even possible. The good news is that you can sell your house after loan modifications; however, you’ll need to figure out which kind of loan modification you agreed to. In addition, some mortgage loan modifications may affect your house sale. Below we’ll share how to sell your Wisconsin home after a loan modification and much more. So let’s get started!
Selling a House After Loan Modifications
If you’ve made loan modifications to your mortgage, you’re not alone. Loan modifications have been able to help many people avoid foreclosure, especially with all the recent job losses due to COVID and after the housing market crisis of 2008 when foreclosures affected many American families.
Although loan modifications have helped people stay in their houses when the time comes to sell, it does raise the question – how do loan modifications affect people trying to move?
As mentioned earlier, it is possible to sell your Wisconsin home after a loan modification, but you’ll still want to look out for a few things when you go to sell your property.
If you’re thinking about selling after a loan modification, it’s essential that you work with a real estate expert familiar with this unique selling situation. That way, things can run smoothly and with minimal if any stress.
What is a Loan Modification?
Lenders offer loan modifications to help the borrower avoid foreclosure. A loan modification is a permanent change in the original terms of the mortgage that lowers payments and gives the homeowner a chance to catch up if they’re experiencing financial difficulties.
Typically, lenders are more likely to change the terms of a loan than risk having to foreclose on the property, because truthfully, foreclosures are more expensive for the lender.
To clarify, though, a loan modification is not the same as refinancing. When you refinance, you essentially replace your loan with a new home loan. A loan modification, on the other hand, changes the terms of the existing loan.
A few ways the lender may change the terms would include:
- Lowering the interest rate
- Changing the interest rate from a variable interest rate to a fixed interest rate.
- Extending the length of the loan to lower monthly payments
Ultimately, you and the lender will both have to agree on the new terms and conditions.
How Do Loan Modifications Work?
A lender may offer a loan modification to a borrower who is behind on their payments or close to defaulting on their loan as long as the borrower can prove they’re experiencing financial hardship.
In most situations, to get a loan modification, you will need to prove what that financial hardship is, like a job loss, illness, or death of a spouse. You may also be able to get a modification on your loan if the interest of a variable interest rate loan has made it difficult for you to make payments.
To initiate a loan modification, you’ll need to apply and submit documentation to prove your current situation. From there, it will be up to the lender to decide which type of loan modification they agree to make on your mortgage, that is if they find that you’re eligible for a modification.
Permanent Loan Modification
A permanent loan modification lasts for the life of the loan. In a loan extension situation, the loan may be changed from a 30-year loan to a 40-year loan – which will lower your payments but cause you to pay more in interest.
Interest Rate Deduction Modification
In an interest rate deduction modification, a couple of things can happen. The lender could change the loan from a variable interest rate to a fixed interest rate. Or the lender could lower the interest rate. However, this does not always mean that you will be getting better terms. The lender can choose to apply the reduced interest amount to the loan’s principal tacked on at the end, which you must pay later down the line.
Principal Deferral Loan Modification
In a principal deferral loan modification, the lender can reduce the amount of principal that is paid off with each loan payment. But when the loan matures, or the house is sold, the amount of principal that the lender deferred will be due.
Which Loan Modification Do You Have?
It’s wise to understand which type of loan modification the lender offers you. A principal deferral, for example, might result in an additional payment or second lien when you want to sell your Wisoncson home that you could be unaware of. Just make sure you work with a knowledgeable real estate expert who understands loan modifications if and when you’re trying to sell your home.
Can I Sell my Home After a Loan Modification?
If you’ve modified your loan, that doesn’t mean you have to stay in your place forever if you don’t want to.
Furthermore, some people find that they are still struggling after a loan modification and would rather get out from underneath their mortgage before they get behind again to avoid a short sale or a foreclosure. For other families, they might want to take advantage of the equity that they have and downsize.
So yes, selling your house after loan modifications is possible as long as the permanent modification is in effect. Your lender won’t be able to prevent a home sale after a permanent loan modification.
But, there might be a prepayment penalty attached to the loan modification. A prepayment penalty is a term in your mortgage agreement stating that if you pay off the loan early, you will pay a penalty.
A prepayment penalty can be noted as a percentage of the principal balance or a specified number of months’ interest – which can result in an additional fee of thousands. For example, if you have a 3% prepayment penalty and a principal balance of $250,000, the prepayment penalty would be $7,500.
Prepayment penalties usually decrease or disappear after a few years, but you will need to check your loan documents to make sure.
How to Sell a Home After a Loan Modification
Besides taking the traditional steps of getting your house ready to list, you’ll also need to request the payoff amount from your lender in writing. The payoff amount should show the total amount to pay off your loan. However, it is possible this could be incorrect if you did a loan modification. So make sure to double-check the information the lender provides so as not to be caught off guard by additional fees during the closing.
Once you have the official payoff amount, it will be essential to work with an experienced real estate specialist familiar with loan modifications. If you decide to work with a realtor, just make sure they have experience with these types of transactions. If you end up selling on your own, you’ll want to brush up on this information. Or, if you choose to sell to one of the companies that buy houses in Milwaukee, make sure they understand your particular selling situation.
The Truth about Selling a House
Selling a house isn’t a fast process, especially if your home requires some repairs or has some deferred maintenance. Also, selling a house in Wisconsin isn’t cheap either; there are plenty of hidden costs besides the possibility of extra expenses owed from making a loan modification.
In such cases, it’s helpful to save money where and when you can, which makes selling to cash home buyers in Glendale a great option. They don’t charge realtor commissions and will even help pay closing costs. And fortunately for you, you can sell your house in as-is condition.
We buy houses Wisconsin companies like Cream City Home Buyers are very knowledgeable about unique selling situations that traditional buyers aren’t familiar with. They helped homeowners going through probate, divorce, foreclosure, bankruptcy, and even after a loan modification, successfully sell their homes without all the hassle.
Are Loan Modifications Permanent & Will They Affect My Credit?
Two common questions people have when going through a loan modification:
- Are Loan Modifications Permanent?
Yes, loan modifications do become permanent once you successfully complete a trial period of paying as agreed. Most lenders set up a trial period of about three months, during which you must successfully meet the new payment requirements. So as long as you make the payments and meet all the eligibility requirements, the loan modification will become permanent.
- Will a Loan Modification Affect Your Credit Score?
Unfortunately, a loan modification can negatively impact your credit score. How much it hurts your credit depends on how your lender modified your loan and what exactly they reported to the credit agencies. For example, if the lender lowered the principal amount by initiating a second loan then the amount might appear on your credit report as “charged off,” which can negatively impact your credit. Also, most loan modifications appear on your credit report in the form of late payments you missed before getting the modification completed. However, on a brighter note, both scenarios are preferable to a foreclosure which can stay on your credit history for seven years.
As you’ve discovered, selling a house after a loan modification is possible; however, you’ll want to find out if you’ll owe any outstanding deferred interest or other hidden costs. That way, you’re not in for a surprise when you’re at the closing table. As far as everything else that goes into successfully selling a house, you’ll want to figure out how to handle repairs, hiring an agent, or selling by owner, and then be prepared to wait for your home to sell officially. If you find that the whole process is stressful and overwhelming, you can always decide to sell your place as-is to Cream City Home Buyers and accept a cash offer for your house and close within 7-days or on your schedule.