If you have bad credit, you may be wondering if you can qualify for a loan modification. And that’s a good question. The answer is: It depends.
Obtaining a Loan Modification with Bad Credit
You may be available for a loan modification if:
- Financial hardship has made it difficult for you to form your mortgage payments fully monthly
- You’re locked into a loan with a high rate of interest and are unable to refinance your loan
- Your house is worth but the balance of your loan (known as being “underwater”)
While many cases, the eligibility criteria for loan modification programs provide homeowners with low credit scores to participate. For example, the FHA Refinancing for Underwater Homes requires only a FICO score of 500. (FICO scores range from 300 to 850, with anything from 300 to 640 considered bad credit.)
In deciding whether to modify your mortgage, your lender may try to determine why you have a bad credit score. If, for example, you’ve missed mortgage payments or been late with your payments, that will hurt your credit score. But if you’ve got a nasty credit score because you’ve got tons of debt (not just your mortgage) and you’re delinquent on many of these accounts, then your lender may deny your application. In that case, the mortgage company may conclude that a mortgage modification won’t help because you’re unable to make most of your debt payments.
A loan modification lawyer can assist you to determine whether you’ll restrict for a mortgage modification.