What exactly happens when you have your loan modified?

Do you get offered the going rate?

Income will be decreasing due to attending college and have to spend one day a week in class for about 11 months.

Many loan modifications are similar to fixed period ARM.  You will get a low fixed rate for 3-5 years and then the rate can increase.  Depending on your exact circumstances, you may get an initial rate below the going rate. 

It would be best to discuss your situation with your servicer.  They may or may not be willing to modify your loan because it is your choice whether to attend classes or not and the decrease in income was not due to a hardship.  Your servicer may allow it, but it is a case by case basis.

thanks again Kent!

Why does it take about 3 months to get an answer? Do they look @ credit score too?

The wait is long due to the number of people requesting modifications.  The servicers just don't have enough people to handle the number of requests.

They might look at your credit, but they aren't as concerned with the score since a modification is often given to somone experiencing hardships already and they would not expect the credit to look good. 

Can you refinance after accepting modification? How would you know if its better to refinance or modify the loan?

You can refinance after a modification as long as you qualify. 

Given the rates available today, I would recommend attempting the refi first.  It won't take as long to find out if you are approved and you could lock into a great fixed rate.  Until you have an offer on a modification, there is no way to determine which would be better.  If it were me, I would not want to wait 3 months for the mod offer to compare to a refi offer since we have no idea where rates would be that far down the road.

Thanks so much for your advice! It has greatly helped in which steps to take!!

No problem.  Let us know if you have more questions.

Kent,

What would you do in this situation?

You have enough money saved for 3 months of mortgage payment(3950).

Your credit score is below 700.

You have 3 open loans almost maxed.

60 day late payment last year that will be off in sept.

Income is going to decrease because of in school.

Would you pay the mortgage ahead or pay down debt to try to bring up credit score?

If the loans are installment loans or mortgages, paying them down won't increase your score.  If they are revolving lines or credit cards, it could help your score by paying them down and you would still have access to the line if you needed it.  If they aren't revolving lines of credit or credit cards (only mc, visa, disc, or AE), I would hold on to the money in case you need it.  Take the amount that you have saved up and divide it by the number of months you plan on being in school; this will tell you how much you could take from the money you saved to offset the decrease in income.

Since you would be waiting for the 60 day late to fall off, you could start the mod process just to see if you could get that done.  Since that process will take some time and you won't be refi'ing, you might as well get in line and see what may happen with your request.

I'm afraid if we arent ahead on the mortgage before something happens then we would be worse off.

The problem is, unless you set up a special arrangement with your servicer each month, they will apply the extra payment to the principal balance and you will still owe the next month's payment.  There is no easy way to "pay ahead" when it comes to monthly payment s on a mortgage.

Also, if you don't have additional funds to fall back on, you could be worse off.  For example, if you needed to spend $2,000 on a car repair, but didn't have the money; you may end up not being able to fix the car, which could mean that you have to change jobs.  Just some food for thought.

WOW! So much to consider.

Thanks for the food for thought!

Once I finish college I should almost double our income, but have student loans to pay off. It's always something. I have really learned a lesson.

Thank you again..cant thank you enough!

Give me 5 stars and we'll call it even!

LOL!

You got it!