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House poor and broke every month? Loan modification could be right for you
by Annie Christian - Special to the Sparks Tribune
May 05, 2011 | 1040 views | 0 0 comments | 7 7 recommendations | email to a friend | print
Annie Christian
Annie Christian
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Dear Annie: My wife and I keep hearing about loan modification but we’re not sure this is the best option for us. Here’s our story: Like so many people, we moved here from California to get away from the big city life and paid too much for our house in 2006. We had no problem finding work in the casinos during the real estate boom. They needed workers to service the constant increase in tourism. The casino where we both worked went through its challenges but we managed to keep our low-paying jobs. Now, we are working full-time hours but without the much-needed overtime. We consider ourselves lucky to keep our jobs at all now that the tourists are not pouring in every weekend.

We paid $350,000 for our house in the quiet suburb of Sparks in 2006. Getting our first home loan was easy back then. Our monthly payment started out at $1,500 a month, but increased every year because of our loan type, eventually landing at $2,200 a month. My wife and I bring home about $3,400 a month. After paying the $2,200 monthly mortgage that only leaves us $1,200 to pay the rest of the bills. We are a household of five that includes three young children. Our household expenses include the high cost of food (can you believe these price lately Annie?), gasoline, credit card payments, car insurance, health care, clothing, food and utilities. Late last year, we cut out cable TV and we stopped renting movies. Since my wife and I work in the same casino, we sold my wife’s car so we share one car between us. I don’t know what else we can cut from our budget to keep from falling behind on all our debts. We can no longer afford to buy new clothes every year for our children. We will soon need to start shopping thrift stores for their clothes and shoes.

I will gladly get a second job in the evenings or on weekends to help make ends meet due to our high mortgage cost. But that means my wife would have to drive me to work and pick me up in addition to getting back and forth from her own job. And with the high cost of gasoline that hardly seems worth it.

We also just found out that our already exorbitant house payment will be going up — again! — in May to $2,400. This is quickly becoming an out-of-control situation. We are house poor and broke every month.

We need help and quick! Will a loan modification help us?

From Dave, Sparks

Dear Dave: The struggles that you and your family unfortunately have to deal with are becoming more and more common in our area. While you will need to contact your lender directly for detailed information about loan modification, let me answer your question with the basics in the meantime.

Generally speaking, any change to mortgage terms is a modification. A loan modification will typically result in a change of monthly payment, interest rate and term. Your lender can help you qualify for a specific program that is right for your loan.

When the mortgage crisis hit, unscrupulous mortgage professionals began setting up “foreclosure rescue” companies promising to persuade lenders to modify mortgages for a large fee. Nonprofit housing counselors approved by the Department of Housing and Urban Development will help borrowers for free! In addition, loan modification companies are now required to become licensed and bonded to legally remain in business, eliminating many fraudulent operations.

For these reasons, it is advisable to go directly to your lender to request a loan modification. It will cut out the middle man and save you thousands in fees and possibly from being the victim of a scam.

Types of modification available:

• Reduction in interest rate (temporary change)

• Change from an adjustable to fixed rate (results in a higher payment immediately)

• Reduction in late fees/penalties

• Lengthening of the loan term from 30- to a 40-year term

• Mortgage forebearance program (temporary change)

Come back next week when I will provide more information and reveal if loan modification was the right decision for Dave.

Annie Christian is a real estate broker and owner of The Annie Christian Real Estate Group. She helps with everything from buying and selling to foreclosure and short sale. To submit a question, call 351-5117. Her website is www.anniechristian.com.
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