Loan Real Estate

Does a Home Loan Modification Hurt a Credit Score or not?

Home Loan Modification is being used today by many home owners in an attempt to avert foreclosure. Given the country’s economic recession, many homeowners feel compelled to modify their mortgage loan terms with the use of a Home Loan Modification.

There are ramifications to both your taxes and credit score when attempting such a change to your mortgage. Numerous factors can and will affect your credit score if you process a home loan modification. The impact on your credit score can be either good or bad.

The impact depends on both the number of months delinquent you are at the time of the modification, and also on the type of Home Loan Modification you process. Since you are not negotiating a new loan, the Home Loan Modification you process should not adversely affect your credit score and if it did so, than it will be more difficult to find quick ways to borrow money. The Home Loan Modification acts to reduce your debt and therefore will lessen the interest you pay. Because of this lessening of the interest, lenders are more apt to favor this type of modification.

The reduction of your debt in this way works to increase you credit. In the event that the lender also forgives part of your loan, the positive effect on you credit score will be even further enhanced. Partial loan forgiveness of this type does not happen often however.

If partial loan forgiveness does occur, a smaller loan will be recorded as a result of the modification and your credit rating will increase. Another way in which a Home Loan Modification affects your credit depends on the reporting method the lender uses to report the modification to the credit bureaus. If the amount currently owed is reported an paid in full, your credit score will be reduced. The same is true if you are in the process of a foreclosure when the modification is reported to the credit bureaus.

However, if you are in foreclosure, the Home Loan Modification allows you to keep your house. If in the process a negative effect on your credit is obtained, that is by far preferable to going through a foreclosure and a short sale. In the past, a Home Loan Modification was a taxable procedure. The amount by which the mortgage loan was forgiven was considered taxable income by the Internal Revenue Service.

This caused hardship for taxpayers and as a result the IRS made the giving of partial loan forgiveness illegal in 2007.Because of this change, the taxes have been forgiven on all modifications involving loan forgiveness made between January 2004 to July 2007 and those adjusting from January 2009 to July 2012. A Home Loan Modification professional’s advice should be sought if you are having difficulties paying your monthly mortgage.

You can benefit in many ways with the assistance of a Home Loan Modification professional; the mortgage principal could be renegotiated, the interest could be reduced, and accrued late charges may even be dropped.

Given these possible advantages of using a professional Home Loan Modification personal, it would be wiser to seek help instead of attempting to complete the Home Loan Modification process yourself.