The economic struggles of the recent past may have forced you to get a loan modification so you could stay in your home. At the time, the only thing you were concerned about was keeping your house and avoiding foreclosure. Now that you've improved your finances, you're ready to move to a new home but you'll need a mortgage. You can still get a mortgage on a home even though you have had a loan modification as long as you meet the following conditions.
Make Consistent On-Time Payments
Making consistent on-time payments is extremely important after receiving a modification of your mortgage. While banks vary, most banks require at least 12 to 24 months of payments on your mortgage after a loan modification has been completed before they will consider approving you for a new mortgage. Some banks may require an even longer waiting period, so it makes sense to shop around to find which lender will work best for you.
In addition to making payments on your mortgage, it is extremely important to make on-time payments on all of your bills. Banks will want to see that you have improved your financial situation after your hardship. Making on-time payments on all of your bills will show the bank that the loan modification was a one-time event and you're now back to your normal financial habits. On-time payments will also help your credit score improve.
Credit Score Requirements
Your credit score may have taken a hit in the process of obtaining a modification for your mortgage. Many borrowers had to miss multiple payments before a bank would consider modifying their loans. The missed payments often devastated the credit scores of those borrowers. If your credit score took a hit during the process of modifying your loan, you'll need to improve your credit score to at least the minimum acceptable level for the bank you will get a mortgage from. You should know your credit score and the bank's requirements before applying for a new mortgage. If you do, you'll avoid wasting both your time and an inquiry on your credit report, which could temporarily lower your credit score, when you haven't yet met the minimum credit score requirement.
Not All Loan Modifications Are the Same
There are many ways a bank could offer to modify your mortgage. Unfortunately, some commonly used methods could cause some banks to deny an application for a new mortgage today. If the bank simply modified your interest rate or restructured your payments, you should still be able to obtain a mortgage if you meet the requirements listed above. However, some banks will deny your new mortgage application if the modification involved either principal forgiveness, which is a reduction in the amount of debt you owe, or forbearance, which is a time period where you didn't make payments and the interest owed was added to the principal owed on the loan.
It Pays to Shop Around
Getting a new mortgage after a loan modification is possible as long as your credit score is in good shape and you make enough consecutive on-time payments on your mortgage and other bills. Shopping around for the best mortgage is essential if you've had a loan modification because some banks may not be willing to offer you a mortgage while others will be happy to approve your application. In addition, shopping for a mortgage will ensure you get the best overall loan for your situation. When comparing mortgage offers, be sure to look at both interest rates and all fees involved in the transaction before picking the best loan for you.