Since the economic crisis, it seems people have struggled to really budget their income. Unfortunately, some people get to the point where they simply don’t have the money available to cover all their bills anymore. It is for this reason that many people still end up in foreclosure. Thankfully, organizations such as the Golden State Financial Group are available to help avoid this through loan modification programs.
What Are Loan Modifications?
In 2009, the Obama Administration first proposed the home loan modification scheme. The aim of the scheme was to ensure people could change their loan in such a way that they would still be able to afford their mortgages. Stringent guidelines were put together to determine whether or not someone would qualify for these arrangements. If they do, then foreclosure could be avoided because the lender and borrower come to a different agreement.
The loan modification process is acceptable to lenders, because it is better than the borrower not paying at all. Furthermore, it stops them from having to pay for foreclosure. Because homes are hard to sell, it foreclosure means lenders are stuck with properties for a long time, which doesn’t benefit them either.
Golden State Financial Group on the Impact on Credit
A lot of people think that if they go through loan modification, their credit score will be negatively impacted. This can be true, because needing a modification means that someone is unable to pay as agreed. Hence, their credit history will demonstrate that a modification has taken place. For some lenders, this means the individual is no longer credit worthy, and the overall credit score does drop to a degree.
However, entering a loan modification also shows other creditors that you are proactive about getting your finances in order. It means that you have done all you can to avoid foreclosure. Hence, some lenders will believe that you are not too big of a risk. That said, it is never recommended to take out more credit if you are in a situation where you need a loan medication.
Building Your Credit Rating
While a loan modification has a negative impact on a credit score, it is possible to rebuild this score quite quickly. As said, simply by taking on the modification, you show yourself as being willing to make payments. Making those new payments on time and as agreed will further demonstrate that you are a trustworthy individual who is trying to get back on track. That said, it is absolutely vital that you do make those payments. If you accept a loan modification yet still aren’t able to budget, then the impact on your credit score will be far more significant.
If you are in a situation where you are struggling to make ends meet, consider seeking some financial advice to see whether a home loan modification could be possible. Doing so could help you keep a roof over your head, and it could top you from taking a catastrophic hit on your credit score as well.