What is a VA loan modification? In the simplest terms it’s an agreement that the borrower and the participating VA lender make to address missed payments. A borrower who misses even a single payment runs the risk of VA loan default and foreclosure. Loan modification is a way to get the loan back on track and address the missed payments.
Home loan default is a serious problem, and in general if you begin to miss payments, the following options are possible depending on the number of payments missed and other variables.
Basic VA Home Loan Foreclosure Avoidance Options
What are the options to avoid having your VA loan go into default and foreclosure? In general:
- VA Loan Repayment plan–for those who have missed payments and who can afford a temporary larger payment schedule to accommodate the missed payments.
- VA Home Loan Special forbearance–where the lender allows a borrower who has fallen behind on payments to make up those payments.
- Loan Modification–where the VA lender permits you to add missed payments and their associated costs to the loan balance. This requires the lender to modify the term of your loan in order to have the missed mortgage payments made up.
- Private Sale–a situation where your lender agrees to delay a foreclosure action to give you time to sell the home instead.
- Short Sale–in cases where a borrower is upside down on their mortgage (owing more money on the mortgage than the home is actually worth on today’s market), they agree to sell the home with the lender accepting the proceeds from that sale (the full amount) to declare the loan paid in full. This option can hurt credit scores.
- Deed in lieu of foreclosure–VA borrowers avoid the foreclosure process by signing over the deed to the home to the lender. The lender then legally owns the home. This option can hurt credit scores.
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Comparing The Options
For certain VA borrowers, VA loan modification is the best option of those listed above. We’ll explore the reasons why below but it’s important to keep in mind that your individual circumstances will play a big part in the choices you and the lender make about saving your loan.
Of the options from the list above, two actively hurt your credit scores; deed-in-lieu and short sale options should be done as a last resort to avoid foreclosure. Those who need to use one of these two foreclosure prevention paths often have waited too long once they experienced financial trouble to explore any other options.
That is something to keep in mind–the longer you wait when you get into financial hardship, the fewer your options are. Private sales are not much better than deed-in-lieu or short sales, but may offer better results (depending entirely on circumstances and variables like the age and condition of the home, etc.).
Can You Afford Bigger Payments?
The VA loan repayment plan option is helpful for those who can afford to make the larger payments, and VA loan Special Forbearance may also be useful for those who can afford to do so; what about the VA borrowers who don’t have that much cash?
Those who need to maintain their monthly financial status quo may find that VA Loan modification is a better route–hypothetically it would allow the same monthly payment over a longer loan term (the missed payments are added to the end of the loan in many cases).
Naturally, much depends on what agreement you are able to work out with your participating VA lender–no two lenders are alike and you may find some are willing to work with your circumstances while others may need compensating factors or have a specific foreclosure avoidance path for you to follow.
Who Qualifies For VA Loan Modification
You may not qualify for a VA loan modification unless you meet certain VA and/or lender criteria. That can include being delinquent or facing imminent default at the time you apply for the modification. You and your lender will discuss the most appropriate measures to help save your home. What could qualify you in the realm of “imminent default”?
- Job loss
- Loss of a spouse
- Disability
- Illness
- Other situations that affect your ability to repay your mortgage under the original loan
What You Need To Know About VA Loan Modification As An Alternative
VA loan modification is basically the agreement you and your lender make to draw up your new loan with the missed payments added in, extending the term of your loan to accommodate the missed payments back into the mortgage.
This modification is subject to lender standards, requires lender approval, and you will be required to work together with a loan officer to get the modification moving forward. Do not delay in seeking loan modification as your options get more restricted with every new missed payment.
The VA official site explains that your options under modification include extending the loan term as previously discussed, but also altering your mortgage loan interest rate, moving the borrower out of an adjustable rate mortgage into a fixed rate loan, etc.
There Are Many Reasons Why A Loan May Be Modified
There are many reasons why a borrower may fall behind on their VA mortgage payments. Natural disasters and national emergencies are just two of those reasons. Layoffs, a poor economy, unemployment, and many other factors can contribute.
Those who suffer from natural disasters or who are affected by national emergencies may be offered loan forbearance and/or loan modification as part of the national response to those situations.
Others may need VA loan modification for other reasons and are not dealing with a federal mandate to prevent foreclosure in the wake of an incident, storm, earthquake, etc. No matter what your circumstances are, all VA borrowers should know that home loan modification is not possible automatically–you must apply for this mortgage relief with your lender directly.
If you do not contact your loan officer, you won’t be given access to a loan modification option. It really is that simple.
VA Loan Relief And Direct VA Home Loan Help
Unlike some mortgage loans, borrowers with VA-backed purchase loans or refinance loans have the option of getting advice and help from the Department of Veterans Affairs. According to the VA official site, “When a VA-guaranteed home loan becomes delinquent, VA provides supplemental servicing assistance to help cure the default.”
While the VA points out that your lender is mostly responsible for helping you to address your loan default, the VA “has Loan Technicians in eight Regional Loan Centers and two special servicing centers who take an active role in interceding with the servicer to explore all options to avoid foreclosure.”
If you are having trouble with your VA mortgage loan, you can call the VA directly at (877) 827-3702 and discuss your issues with a VA loan guaranty representative.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News
