Many people are facing tough times, and it is way better to try to get your home loan modified than to walk away or file bankruptcy or face foreclosure. You must be aware, however, that just like a foreclosure, modifying your loan can effect your credit score, but to a lesser degree.
When your lender begins a loan modification for you, they lower your payments for a trial period to 31% of your pre-tax income. During this period of time, they are checking to see if you will be able to meet the new obligations of your mortgage. During this trial period, borrowers who have never been late on a payment can expect to see their credit score drop by about 100 points. If you have been late before you enter into this trial, your score may drop even more.
BUT WAIT– there is good news:
Once the modification is approved, the borrowers’ mortgage credit status will be listed as current and that should improve their scores, the Mortgage Bankers Association explains.
The loan modification will appear on your credit score and have an adverse effect on your credit. It will stay on your report for 7 years, but still, a loan modification is way better than a foreclosure, and shows that you acted responsibly in dealing with the situation.
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