Getting an FHA loan modification can provide much-needed relief if you are struggling to make your mortgage payments. Modifications allow you to change the terms of your loan to make it more affordable. However, there are specific requirements you must meet to qualify. In this comprehensive guide, we will explain the ins and outs of FHA loan modifications so you can determine if it’s the right option for your situation.
What is an FHA Loan Modification?
An FHA loan modification is when the lender changes the original terms of an FHA-insured mortgage loan to make the payments more affordable Modifications can include
- Lowering the interest rate
- Extending the loan term
- Adding missed payments to the loan balance
- Reducing the principal balance
The goal is to get the monthly payment to an amount the borrower can manage based on their current financial situation FHA modifications help homeowners avoid foreclosure and stay in their homes.
FHA Modification Eligibility Requirements
To qualify for an FHA modification, there are a few baseline criteria you must meet:
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Your mortgage must be FHA-insured. FHA modifications only apply to loans backed by the Federal Housing Administration.
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You must occupy the property as your primary residence. Investment properties or second homes are not eligible.
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You must be experiencing a financial hardship that makes it difficult to pay your mortgage. Examples include reduced income, unemployment, high medical bills etc.
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You must lack sufficient income/assets to catch up on late payments through a repayment plan.
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Your mortgage payment must be more than 31% of your gross monthly income.
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You must be at least 2 months behind on payments to qualify for a standard FHA modification.
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Your total monthly debts cannot be more than 55% of your gross monthly income.
In addition to these general requirements, there are more specific eligibility criteria depending on the exact type of modification program you apply for.
Types of FHA Loan Modifications
The main categories of FHA modifications include:
1. FHA-HAMP
FHA-HAMP stands for the FHA Home Affordable Modification Program. It is similar to the HAMP program for conventional loans. FHA-HAMP aims to help homeowners get their payments down to 31% of their monthly gross income.
It can include:
- Interest rate reduction to as low as 2%
- Term extension up to 40 years
- Forbearance of principal
- Partial claim up to 30% of unpaid balance
To qualify for FHA-HAMP:
- You must meet standard FHA modification eligibility criteria
- Your current FHA mortgage originated on or before June 1, 2009
- The property securing the mortgage cannot be condemned or vacant
- You must successfully complete a 3 month trial payment plan
2. FHA Streamline Modification
An FHA streamline modification has simplified eligibility requirements and does not require a trial period. To qualify:
- Your mortgage must be at least 6 months old
- You must be at least 2 months delinquent
- Your total monthly debt-to-income ratio must be over 55%
With a streamline FHA modification:
- The interest rate can be reduced but not below market rate
- The term can be extended up to 480 months
- The lender may capitalize delinquent payments
3. FHA Disaster Modification
If your financial hardship is due to a declared major disaster, you may qualify for an FHA disaster modification. General requirements are:
- Your home or place of employment must be in a designated disaster area
- You must have lost income or suffered disaster-related expenses
- You must have been current on your mortgage prior to the disaster
Benefits include:
- Reduced documentation requirements
- Lender flexibility in tailoring assistance
- Possible mortgage payment forbearance for up to 90 days
4. COVID-19 Special Forbearance
From March 2020 through December 31, 2022 borrowers financially impacted by COVID-19 can get special FHA forbearance of up to 6 months, with an additional 6 month extension. You simply need to request it from your servicer.
After forbearance, FHA offers various modification options:
- COVID-19 Recovery Standalone Partial Claim – Arrearages placed in a zero-interest subordinate lien
- COVID-19 Recovery Loan Modification – Payment reduction through interest rate reduction and term extension
- COVID-19 Advance Loan Modification – Servicer automatically adjusts loan terms to achieve 25% payment reduction
5. FHA-HAMP Combination Modification
For homeowners needing significant payment relief, FHA allows lenders to combine an FHA-HAMP modification with a partial claim. This results in a lower interest rate and payment as well as deferral of up to 30% of the unpaid principal balance.
Eligibility requirements are the same as for a standard FHA-HAMP mod. The lender must first attempt a standalone mod before using the combination option.
The FHA Modification Process
If you meet the basic eligibility criteria, here are the general steps to getting an FHA modification:
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Contact your lender/servicer – Let them know you are having trouble paying your mortgage and want to apply for an FHA modification. Be prepared to provide financial documentation.
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Complete application – Your lender will give you a Loan Modification Application package to fill out. Provide all required income evidence.
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Trial period – For FHA-HAMP mods, you must successfully make 3 modified payments before the mod is permanently implemented.
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Final modification – After successfully completing the trial period, you will sign final modification paperwork implementing the permanent new loan terms.
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Modified payments begin – Once executed, you begin making the permanently modified mortgage payments. Make sure to make all payments on time going forward.
The process takes several months from start to finish, so be patient. Stay in communication with your lender throughout.
If you are denied for any reason, be sure to find out why and discuss any appeal options. Don’t give up! Explore other modification programs or hardship assistance alternatives.
Tips for Getting Approved for an FHA Modification
Here are some key tips to boost your chances of getting an FHA loan modification approved:
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Apply early – Don’t wait until you are way behind on payments. The earlier you apply, the better your chances.
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Provide complete documentation – Give your lender all needed financial docs upfront to avoid delays. Include proof of hardship.
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Stay in communication – Respond promptly to all requests from your lender. Silence can hurt your application.
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Make trial payments on time – Missing even one trial payment can get your mod denied, so pay on time.
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Check guidelines and deadlines – Loan modification programs can change. Verify you know the current rules.
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Consider alternatives – If denied a modification, ask about other options like forbearance or a repayment plan.
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Seek housing counseling – Free HUD-approved counselors can help navigate the process.
With some persistence and paperwork, an FHA modification can provide real mortgage relief. Just be sure you understand all the ins and outs of the program requirements so you can get approved. If you follow the process closely while proactively communicating with your lender, you’ll have the best chance of success. Don’t hesitate to ask questions or seek outside help as needed. The payoff of getting into an affordable loan modification is well worth the effort.
COVID-19 Recovery Loss Mitigation Options
The COVID-19 Recovery Loss Mitigation Options provide borrowers with options to bring their Mortgage current and may reduce the P&I portion of their monthly mortgage payment to reduce the risk of re-default and assist in the broader COVID-19 recovery. FHA offers COVID-19 Recovery Options to borrowers who are 61 days or more delinquent through April 30, 2025. Non-Borrowers who acquired title through an exempted transfer are not eligible for the COVID-19 Recovery Options and must be evaluated for FHAs Standard Loss Mitigation Options.
COVID-19 Recovery Home Retention Options:
- COVID-19 Recovery Standalone Partial Claim: For borrowers who can resume making their current mortgage payments, the COVID-19 Recovery Standalone Partial Claim allows mortgage payment arrearages to be placed in a zero interest subordinate lien against the property. The Partial Claim amount does not require payment until the last mortgage payment is made, the loan is refinanced, or the property is sold, whichever occurs first.
- COVID-19 Recovery Modification: For borrowers who cannot resume making their current monthly mortgage payments, the COVID-19 Recovery Modification resolves the outstanding mortgage payment arrearages by adding it to the principal loan balance of the first mortgage, extending the term to 30 or 40 years at the current fixed market interest rate, and targets reducing the borrowers monthly principal and interest portion of their monthly mortgage payment. The COVID-19 Recovery Modification must include a Partial Claim if the borrower has Partial Claim funds available.
- Payment Supplement: For borrowers who cannot achieve a payment reduction through a COVID-19 Recovery Modification, the Payment Supplement utilizes Partial Claim funds to resolve the outstanding mortgage payment arrearages and provides a monthly principal reduction payment. This option temporarily reduces the borrowers monthly mortgage payment for a period of three years. The Payment Supplement may be available to borrowers beginning May 1, 2024, but must be available to all eligible borrowers no later than January 1, 2025. Borrowers may inquire about the availability of the Payment Supplement with their mortgage Servicer.
- COVID-19 Pre-Foreclosure Sale (PFS): If the borrower does not qualify for any of the COVID-19 Home Retention Options and the property sales value is not enough to pay the loan in full, the servicer may be able to accept less than the full amount owed by approving eligible borrowers for a Pre-Foreclosure Sale, also known as a short sale.
- COVID-19 Deed-in-Lieu (DIL) of Foreclosure: If the borrower is unable to complete a COVID-19 PFS transaction at the expiration of the PFS marketing period, they may be able to voluntarily offer to deed (“give back”) the property to HUD in exchange for a release from all obligations under the Mortgage.
COVID-19 Loss Mitigation for Home Equity Conversion Mortgage (HECM) Borrowers
- COVID-19 HECM Property Charge Repayment Plan: The COVID-19 HECM Property Charge Repayment Plan allows servicers to offer eligible homeowners up to five years (60 months) to repay property charges advanced by the servicer. This additional time to repay delinquent property charges will increase the likelihood that affected borrowers can cure property charge delinquencies and avoid foreclosure.
- Allows the COVID-19 HECM Repayment Plan regardless of whether the borrower has been unsuccessful on a prior repayment plan and whether the borrower owes more than $5,000 in property charge advances; and
- Only requires a verbal attestation from the borrower that they have been impacted by COVID-19.
- This option is also available to borrowers who have applied for Homeowner Assistance Fund (HAF) assistance if the HAF funds combined with the borrowers ability to repay will satisfy the servicers advances for the delinquent property charges.
- COVID-19 HECM Property Charge Repayment Plans must be initiated one year following the expiration of the COVID-19 National Emergency.
The American Rescue Plan Act of 2021 established the Homeowner Assistance Fund (HAF) in the U.S. Department of the Treasury in order to provide financial assistance to eligible homeowners who have suffered financial hardships during the COVID-19 National Emergency.
Qualified expenses may include mortgage payment assistance, mortgage reinstatement, utilities, insurance, and other housing-related costs.
If permissible by your states HAF program, HAF Funds may be used in combination with FHAs COVID-19 Loss Mitigation Options for single family forward mortgages and may also be utilized to reduce the balance or pay off the borrowers outstanding loss mitigation Partial Claims, including for borrowers whose mortgage payments are now current.
HAF may also be used in combination with the COVID-19 HECM Property Charge Repayment Plan. FHA also permits the application of HAF to pay for delinquent property tax and homeowners insurance charges on defaulted HECMs.
More information about HAF can be found at: https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/homeowner-assistance-fund
HAF information by state can be found at: https://www.ncsha.org/homeowner-assistance-fund/
HUDs FAQs on HAF in connection with FHA Loss Mitigation can be found at: https://www.hud.gov/answers by selecting the HUD NSC Servicing link on the left side, and then selecting Treasury Homeowner Assistance Fund (HAF) Program.
New FHA Loan Modification. Reduce Payment by 25%. Stop Foreclosure!
FAQ
Can you do a loan modification on a FHA loan?
What are the rules for loan modification?
What makes a borrower ineligible for a loan modification?
Can you be turned down for a loan modification?
What is the new FHA loan modification rule?
The rule also aligns FHA’s requirements with loan modification options available to mortgagees for borrowers with mortgages backed by Fannie Mae and Freddie Mac, which provide a 40-year loan modification option. The regulations in this final rule are effective on May 8, 2023.
Does FHA offer a 40-year loan modification option?
This change will also align FHA with modifications available to borrowers with mortgages backed by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which both currently provide a 40-year loan modification option.
What are the options for an FHA loan modification?
For an FHA loan modification, there are two options: an interest-free loan for up to 30 percent of your balance, and a 40-year loan extension as of May 2023. The U.S. Department of Housing and Urban Development made the 40-year loan extension rule effective.
What is a mortgage modification?
A mortgage modification changes the loan’s rate or term (or both) to make monthly payments more affordable for borrowers who can’t afford their current mortgage payments. To get a modification, they must provide proof of hardship to their mortgage lender or servicer. Modifications are a long-term financial relief option for homeowners.