Question by ChristopherP: If I use Obama‘s loan modification plan, will I hurt my credit?
I have an ARM that expires in January 2011. My current mortgage payment is 00 per month (5% rate). I tried to refinance into a 30-year fixed but got denied (My wife only works part-time right now). My mortgage company says I qualify for an immediate reduction of 0 to my monthly payment for the next 4 months while they review our information and determine if we qualify for a permanent loan modification. They think we probably will. But they warned that they report to the credit bureau that we will only be making a partial payment for the next 4 months, and that we will be taking part in the Obama loan modification plan. Is that bad? My wife plans to go back to work full-time in 4-5 years and then we’d like to buy a bigger house. Will using this loan modification plan ruin our credit and kill our chances of getting approved for a loan in the future? We have perfect credit right now, no missed or late payments. How bad does it hurt our credit? Any ideas?
Best answer:
Answer by Iguana
My wife quit her job about 2 years ago. She has no immediate plans to re join the work force, even though we are financially sinking in an eyeball deep sea of debt. It’s true when they say,”men work because they must,women work because they want to”.
Know better? Leave your own answer in the comments!
It depends on the exact type of loan modification that you do.
If the bank is merely reducing your payments but not reducing the principle value owed on the property then you can expect so see no ding whatsoever on your credit report. When they say they will report to the credit bureau that you will be taking part in loan modifcation that is so the credit bureaus do not see the lower payment and automatically give you a ding for not paying the full amount. That’s a good thing. You shouldn’t see any change in your good credit rating.
If, however, the principle value of the property is ulitmately reduced you will see a mark against you for paying less than was originally agreed upon in your contract.
Even if this did occur, late and unpaid items on your report affect you less and less as time goes by. Even someone who has had a foreclosure or bankruptcy on their report can reasonably attempt to buy a home after two years have passed and they have used that time to make prompt payments on their debts.
If you aren’t buying another home for 4-5 years and you and your wife have a good credit history then you have very little to worry about. Any ding that would occur would have smoothed itself out by then and a payment modification doesn’t hurt you one bit.
Best of luck with your new loan.